The European White Paper on the Integration of EU Mortgage Credit Markets might not invoke euphoria, but it is possible it may actually turn out to be very successful piece of work. Published in late December, the document represents the next stage in the mortgage credit work of the EU and follows on from the 2005 Green Paper on the same subject.
Europe is a complicated beast and the White Paper represents only a small part of the work being undertaken. Most notably, the work on credit intermediaries is particularly relevant for this year. While disjointing work in some ways has the potential to confuse, if due attention is paid to other work streams the effect of ‘bite-sized’ regulation can be far easier to handle. And remembering the massive political sensitivities within which the Commission must work, it is perhaps unsurprising that it wants to tackle a little at a time.
Looking at the White Paper itself, it is clear that this document focuses on ‘supply-side’ issues. However, in a carefully crafted statement, it makes it obvious that the document is not a response to the current market turmoil. Part of the comparative lack of firm proposals sensibly stems from an acknowledgement that the market is undergoing a period of difficulty. This cautious approach should surely be welcomed – the last thing the present market needs is reactionary regulation without thorough investigation of what is a complex but current market problem.
While the focus is supply side, there are a number references to intermediaries in the document. Perhaps more importantly are the repeated references to the Consumer Credit Directive (CCD), and the possible extension to mortgage credit. The CCD did not affect secured loans – either intermediaries or lenders – yet parts of it could be the foundation for this work. For this reason, early engagement with the White Paper is crucial as it could itself form the foundation of future credit intermediaries’ work.
The document makes much reference to benefits to the European economy. It is not surprising that many believe the real purpose of regulation – good consumer outcomes – can get lost in some of our more bureaucratic regulations. So it is pleasing to see such a visible reliance on impact assessments and qualitative cost-benefit analysis. By comparison, in the UK we still await a cost-benefit analysis after three years of treating customers fairly (TCF).
Looking at the specific points raised in the document, all seem logical areas to consider. Given the variations in member states, and the overarching desire to encourage cross-border activity, namely by encouraging lenders to offer credit cross-border rather than the infinitely more difficult task of encouraging locals to shop cross-border, focusing on standardisation of comparative tools such as APRs makes sense.
While sensible for many states, the European Standard Information Sheet (ESIS – similar to the key facts illustration (KFI)) could cause expense for UK firms if consensus led to changes to our KFI. This is one of the difficulties of being one of the more developed financial services markets in Europe. Consumers are far more likely to use a KFI/ESIS as an ‘aide-memoir’ than to facilitate shopping around, so it will be interesting to see how important the Commission believes the ESIS is.
Early repayment charges (ERCs) are a potentially thorny issue that the Commission has not shied away from tackling. While in the UK ERCs are accepted and varied – none at all through to percentages over the whole term – some other countries have far less flexible approaches. In areas like this, it would be hoped that key stakeholders, such as the Association of Mortgage Intermediaries (AMI), will be able to educate the Commission on the successes of the UK market. AMI would of course disagree with any prescription of charges that could stifle the innovative range of products offered in the UK, and would seek to share its experiences with our European neighbours. Conversely, if another member state did have any style of mortgage that is not available in the UK, then surely additional products would benefit consumers too?
Responsible lending is another issue the UK markets will be able to offer insight on, and maybe AMI will even update some of its own thinking in return. Many of the concepts of responsible lending will be familiar to UK firms, but an opportunity to consider ‘high-level advice standards’ and to learn from other parts of Europe should be welcomed.
AMI will be producing further analysis of the White Paper over coming weeks – keep an eye on the AMI website (www.a-m-i.org.uk) for more details. n
Andrew Strange is policy analyst at AMI, AFB & AIFA