But before finalising these rules, MEPs wish to fine-tune them to ensure that they are properly enforced across the EU. The legislation will cover mortgages on residential property, residential property including an office space and building land. Some of its requirements would be adapted to reflect differences among EU Member States' national mortgage and property markets, but the information for buyers would have to be presented in a consistent format across the EU.
Before the contract is signed
Anyone signing up for a mortgage in the EU should receive comparable information about the products available, and understand the total cost and long-run financial consequences of taking out the loan. Credit terms offered to borrowers would have to match their current financial situation and take account of their prospects and possible downturns. Moreover, buyers would have to be given a mandatory seven-day reflection before signing the loan, or a seven-day right of withdrawal thereafter.
While it lasts
MEPs inserted more flexible rules, including a borrower's right to repay the loan early, subject to possible conditions to be decided by EU Member States, and a lender's right to fair compensation for such early repayment. However, obliging borrowers to pay penalties for early repayment would be prohibited.
Under the new rules for loans denominated in a foreign currency, the borrower should be warned before signing the contract that the instalments payable could increase. Alternatively, the borrower could be allowed to change the currency, on certain conditions and at the exchange rate stated in the loan contract.
Protection against default
MEPs added a new rule stipulating that the return of collateral such as the property itself will suffice to repay the loan, provided that the lender and borrower expressly agree to this in the contract.
Where a borrower defaults on a loan, the legislation should include requirements to sell the property for the "best effort" price and to facilitate the remaining debt repayments, so as to protect consumers and prevent their becoming over-indebted for long periods, say MEPs.
MEPs adopted the final wording of the text, but before approving the rules overall, Parliament wants EU Member States to undertake to ensure that they are properly enforced on their territory, i.e. throughout the EU.
See also “Mortgages: The new rules will make irresponsible lending more difficult”, 9.9.13
The European Banking Federation welcomed the adoption by the European Parliament of the directive on credit agreements relating to residential property.
“Mortgages are extremely important to European consumers and to our economy in general”, commented Guido Ravoet, Chief Executive of the EBF. “While respecting the various national legal traditions and practices, the Directive will help align the responsible practices and legal incentives in terms of mortgage and consumer credit, already implemented for some years in many EU Member States.”
© European Parliament
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