The European Commission has started the mammoth task of putting forward measures at an EU level on responsible lending and borrowing. This includes a reliable framework on credit intermediation, in the context of delivering responsible and reliable markets for the future and restoring consumer confidence.
The Commission’s objective? To collect stakeholders’ reactions to the issues raised in a consultation document.
So, change is coming out of Europe and there’s no avoiding it. But what does it all mean for the UK mortgage market?
Of course, regulation of retail mortgages has been around for a number of years in the UK.
However, the European Commission points out in its ‘Consultation on Responsible Lending and Borrowing in the EU’ working paper that within the EU as a whole there are regulatory gaps. Its aim is to address irresponsible mortgage lending and borrowing at an EU level in order to minimise consumer detriment, improve customer mobility and facilitate cross border activity.
Suitability and affordability of credit products will be a major focus of the Directive, anticipated as the outcome of the consultation document. This will refer to the appropriateness of a mortgage loan’s terms for the borrower’s specific situation. So before granting a mortgage, a lender will have to assess the borrower’s personal circumstances such as income, expenditure and any other elements that might influence their ability to repay the loan.
Furthermore, there will need to be an effective assessment of creditworthiness and overall risk assessment by the lender.
Lenders will therefore have to take ultimate responsibility for ensure mortgages are affordable for their borrowers, which to some may feel more like a straitjacket to the industry rather than a suit coat.
So what does this all mean? I believe one of the outcomes will be more data sharing and new data sources, for instance, to help understand an individual’s income.
But how will UK lenders feel about this European view? Welcome influence or interference?
