That said, they do come up with some questionable legislative ideas and I’m afraid the recent proposed directive on mortgage lending is an example of just that.
The proposed Directive of the European Parliament and of the Council on Credit Agreements Relating to Residential Property, to give it its full name, was published on 31 March 2011 to much interest from lenders.
Creating legislation for such diverse markets as are contained in the European Union is always going to be a difficult task and I don’t envy some of the choices the Parliament must make. But it is important that we don’t end up with legislation which plays to the new entrants but is totally inappropriate for some jurisdictions.
A standardised form – the European Standardised Information Sheet (ESIS) – which will allow consumers to compare different mortgages is, in fairness, a good idea.
Sadly though, the FSA has beaten the EU to it and we already have this in the form of the Key Facts Illustration. So, in essence, we’re looking at lenders spending a great deal of money, most likely tens of millions of pounds, to bring in a document which is less informative to consumers than the one we have at present.
In fact, the Commission estimates that the implementation of the Directive will cost a collective £336m to £554m for all member states, with ongoing costs being between £236m and £290m.
These figures are of course estimates only, because the EU does not have to produce Regulatory Impact Assessments to determine the likely costs of new regulation like the UK government must. But that’s a blog for another day…
I also find it interesting that under the Directive, lenders must provide an explanation to customers at the pre-contract stage, which will be determined by the level of the consumer’s knowledge and competence.
I, for one, don’t fancy being required to take an IQ test before my mortgage application (not least of which because I can never figure out the ‘guess which shape comes next in the pattern’ part) and, short of this, it will be difficult for lenders to prove that they have adequately tailored their advice to consumers’ competence levels.
Suffice to say that we still have a long way to go before the Directive is finalised and transposed to UK legislation, but in the meantime I’m off to practise some IQ tests.
Paul Broadhead is head of mortgage policy at the BSA
