Mortgage credit (debate) 
President
The next item is the debate on the report by Mr Purvis, on behalf of the Committee on Economic and Monetary Affairs, on mortgage credit in the EU.
John Purvis 
rapporteur. - Mr President, what I was trying to tell you before was that Mr Allister's speech was coming through in a foreign language on the English channel, so the English was being translated into something else, I do not know what. I am sorry Mr Allister, but we could not make out what you were saying!
European mortgage loans outstanding amount to some EUR 5 trillion, or 45% of the EU's GDP, and mortgage lending has grown by 9.4% per annum over the past five years. A home is usually the largest purchase made in a lifetime, and the related mortgage is the most important financial obligation most people ever have. It is no surprise, therefore, that the Commission has focused on this area as it shifts its attention to retail financial services.
The mortgage market is fragmented along national lines and opening up this market should lead to consumers being offered better value and a greater choice of mortgage products. There could be more opportunities for those people who currently find it difficult to get a mortgage, such as first-time buyers or people with fixed-term contracts. It should make it easier for people moving to another EU country for work or retirement or wanting to buy a second property abroad.
For lenders, a more integrated market would offer greater economies of scale, reduce costs and lower rates for the borrower. On the other hand, local culture and traditions have shaped the products available and consumers will not want any diminution of existing consumer protection standards. Full harmonisation would be expensive for the industry and could limit the range of products it offers. The industry is highly competitive within most of our Member States, so we must not take heavy-handed action that might damage this booming sector. We want to see a European mortgage credit market with a broad range of products at competitive prices and any changes must benefit mortgage borrowers above all.
We are therefore against a grand harmonising piece of legislation. It would be bad for consumers and bad for business. Instead, the Committee on Economic and Monetary Affairs agrees that we should focus on targeted measures aimed at removing specific barriers to cross-border mortgages. Any measures should only be taken after impact assessments have shown that the benefits outweigh the costs. Non-legislative means are to be preferred wherever possible.
Our first priority should be to bring about a better European funding market. There are a number of obstacles preventing this. I would therefore like to see a database covering the various mortgage markets and mortgage securities, so that investors can better evaluate and price mortgage pools. We suggest a range of standardised packages of European mortgages for trading on the capital markets. Mortgage brokers could play an important role in helping borrowers access mortgage credit from domestic and non-domestic lenders. I am pleased that the Commission has undertaken to assess any problems related to those credit intermediaries.
On the issue of the annual percentage rate of charge, we need an EU standard. The majority in the committee wanted an EU standard comprising all the charges levied by the lender, but with information as far as possible regarding any other costs. The report considers that restrictions on early repayment charges and interest rates are likely to restrict the development of new products, especially those for higher risk borrowers, as well as the development of the funding market.
Among other issues we raised are removing obstacles to the transfer of loans across borders and assessing the potential of the Euro-mortgage. The law applicable to mortgage credit contracts should be addressed, with the revision of the 1980 Rome Convention. On credit databases, we want to see a consistent format and non-discriminatory cross-border access to both positive and negative credit data, always subject to privacy protection.
In the area of forced sales, we support the idea of a scoreboard, comparing the length and costs of judicial processes in the various Member States. Various professional bodies should agree on common property valuation standards.
On land registers, the report favours improving access to standardised information, as well as supporting further work on the European Land Information Service.
Tax barriers remain a problem and need to be looked at, even if their resolution is dependent upon the Member States under subsidiarity.
The European Central Bank and the Commission have the important job of monitoring the potential risks of the massive and increasing levels of mortgage debt and their potential impact on capital markets.
I much appreciate the support and input received from my colleagues on all sides of the Committee on Economic and Monetary Affairs. The Commission seems to be set on much the same line as we propose. We look forward to the White Paper next year and we hope we will be able to continue the excellent cooperation we have enjoyed so far on this important subject.
Charlie McCreevy
Member of the Commission. Mr President, honourable Members, the White Paper on Financial Services Policy 2005-2010 sets out a roadmap for opening up Europe's fragmented retail financial services markets. One of the core elements of this strategy is our ongoing initiative on mortgage credit.
The challenges of integrating European mortgage markets should not be underestimated. Differences in product characteristics, distribution systems, consumer behaviour and many other economic, structural and indeed social factors all have a significant impact on the sector. We should not forget that for most European consumers, taking out a mortgage is perhaps the most significant financial decision in their lives.
Given the economic and social significance of mortgage lending, the Commission has adopted an open and consultative approach. Deliberations began in 2003 with the establishment of a forum group on mortgage credit, and a Green Paper was published in July 2005. A cost-benefit study was published in August 2005 to provide insight into the potential benefits of initiatives in the field of mortgage credit.
The public consultation that followed the publication of the Green Paper confirmed that the Commission was on the right track. At the same time, however, it identified areas where further analysis was required, for example on mortgage funding, before the Commission could decide on the appropriate policy responses.
Your report comes at an important moment in our deliberations. The consultation phase is drawing to a close and we are fast approaching a time when the Commission must decide how to proceed.
I wish to thank the rapporteurs for their hard work in preparing what I believe is a carefully thought-through and pragmatic report. I would like to focus on some aspects of the report.
I am pleased to read that you also believe that there are benefits to be obtained from integration. This position is consistent with our own analysis and the feedback that we have received in the Green Paper consultation. As the responses to the Green Paper consultation illustrate, there is a lot of debate on what the right means to achieve these benefits are. You propose a pragmatic and nuanced approach calling for focused measures accompanied by comprehensive impact assessments. As you know, I have a strong personal commitment to better regulation with a full impact assessment identifying the problems and setting out objectives and options. We in the Commission will be looking at the full range of tools at our disposal, not just legislative ones, in finding the most appropriate policy response to each issue addressed in the Green Paper.
I welcome the fact that the report underlines the benefits from enhancing product diversity and asks the Commission to ensure that actions do not hamper innovation and competition. A wide range of products is currently available to borrowers in the European Union. However, in no single country can consumers have access to a complete range of products. In some markets, certain groups of borrowers - for example, the self-employed, or borrowers with low or incomplete credit profiles - find it difficult to obtain mortgages or are even excluded. Barriers also exist that limit mortgage lenders' incentives to operate cross-border, thus preventing new and innovative products and processes from being introduced in other markets across Europe. In this respect I think our goals fully concur with those set out in the report.
Mortgage credit covers many contexts and technical issues ranging from consumer protection, through mortgage funding, to property valuation and land registration, to name but a few of the issues to be addressed.
I look forward to continuing our very fruitful dialogue with Parliament on how best to address the policy challenges emerging from this in the interests of assisting the development of a genuine single market for mortgage credit that creates new opportunities for lenders and borrowers alike, and that ensures appropriate protection for what remains for the vast majority of Europeans the most important financial decision the make in their lives.
Manuel Medina Ortega 
draftsman of the opinion of the Committee on the Internal Market and Consumer Protection. - (ES) Mr President, I believe that the Commission has taken the right approach in relation to mortgages, because, as the Commissioner has said, it is probably the most significant commitment European citizens make in their entire lives: the loan to buy their own homes.
We must therefore bear in mind that we are moving towards a single market and, within that single market, it does not make much sense to have 27 different national legislations or 27 different mortgage systems.
Furthermore, it is an issue that relates to the most essential elements of the legal system of each State. Results will not be achieved either easily or immediately; it will take some time.
In any event, we in the Committee on the Internal Market and Consumer Protection wish to stress the importance of making progress in the legislative field. It is not of course possible to adopt complete European Union legislation on mortgages, but it is possible to make some progress, in the field of information, for example, maximum permitted rates, repayment of mortgages at a given time, so that, when a citizen moves from one European Union country to another, they do not find themselves in a legal framework completely different to the one they are used to.
Kurt Lechner 
draftsman of the opinion of the Committee on Legal Affairs and the Internal Market. - (DE) Mr President, ladies and gentlemen, the mortgage credit market continues to be divided up along national lines. Why is this so? Is it because of difficulties with language, because of the different financial cultures, the legal framework, or is it because people have confidences in lenders with which they are familiar and which are on their doorstep? What the Commission is proposing to do is to examine the possibility of harmonising the legal framework in order to increase the volume of cross-border lending and borrowing.
Such an inquiry is to be welcomed. Even more to be welcomed is the statement in the Green Paper to the effect that extensive studies are still regarded as necessary before proposals for regulations can be made, and the Green Paper's own emphasis on the difficulty of the matter in hand.
Legal differences in the Member States are not to be found in one area alone, although they certainly are present in mortgage law, but - as both Commissioner McCreevy and Mr Medina Ortega have just pointed out - they affect many aspects of the law, among them land registration, the practices of notaries, the law in relation to forced sales, the law of contract and the protection of consumers, all of which areas of the law are interconnected. In some of them, the European Union has no power to enact regulations, and harmonisation from the centre in one area could have seriously detrimental effects at the national level, doing, in fact, more harm than good.
What is unreservedly to be welcomed, though, is further promotion of the refinancing markets, and so I want to say an unreserved 'yes' to this being investigated and analysed and to the efforts at achieving integration, albeit primarily through convergence. While I do not want to exclude the possibility of Europe-wide regulation, we do take a rather sceptical view of European legislation as a consequence of its capacity for destroying functioning markets. Extensive studies are, in any case, still needed. We also, perhaps, need to face up to the fact that this is where we reach the outer limit of what can be standardised in Europe through legislation at the European level. I do not think this House's role as legislator is without its problematic aspects, since it, when the Commission itself says that more extensive investigations are needed, must, to some degree, stay its hand and should not be precipitate in calling for legislative initiatives - and, indeed, has not done that. I endorse the essence of the report.
Harald Ettl
on behalf of the PSE Group. - (DE) Mr President, Commissioner, many thanks to Mr Purvis for the work he has done. The Green Paper on mortgage credit that the Commission published in July 2005 triggered intensive debate on whether the EU's legislators should initiate action, and, if so, in which areas.
Attempting to enact regulations applicable across Europe as a whole would seem to run up against very considerable differences between legal systems, and, above all, between financial cultures, but buying real property is the biggest decision on matters of expenditure that many households will take, and so the mortgage credit required to fund that is of commensurate importance. Studies show that private customers still - despite the euro and the internal market - have recourse to a credit institution they trust, as a rule to the bank with which they have an account, and that does of course have something to do with the fact that, of all financial markets, that for mortgage credit is the most complex. The giving of mortgage credit is therefore still carried out on a largely national, or indeed local, basis.
Of all mortgage credit, only 1% is taken out across borders, not least - or so one surmises - as a consequence of the market and tax barriers involved; further integration would represent an estimated net 1% gain for European mortgage markets - a not inconsiderable sum that would be achieved over no more than ten years. If, then, we want an internal market in mortgage credit, we will have to guarantee that new rules applicable to it will result in a measurable added value for private customers.
One of the most important things from the consumer's point of view is the ability to compare the various credit offers before signing a contract, along with the option of early repayment of part of the loan and the conditions subject to which variable or fixed interest rates may be agreed. The ways in which various associated charges are calculated must also be both comparable and transparent.
Any new rules must also improve the situation of borrowers with poor or incomplete credit ratings, above all by enabling them to afford mortgages. Persons in this category include workers on short-term contracts and younger workers in particular, and these potential borrowers should not be excluded from the mortgage market. Experience has shown that the voluntary code of conduct to which over 3 000 lenders signed up in 2003 has not, in fact, been complied with, and here too there is a need for the Commission to review the situation and take action.
In any case, though, the further integration of the EU's mortgage credit market would be beneficial not only to consumers but also to the economy.
Margarita Starkevičiūtė
on behalf of the ALDE Group. - (LT) I would like to thank the rapporteur for a well drafted report and to emphasise the importance of the initiated discussion on a common European mortgage market. New needs in the mortgage sector are emerging due to the rapid integration of the EU labour and capital markets, and the development of the internal market. We think it is extremely important to duly assess the emerging challenges.
First of all, there is a need to reduce the costs related to capital increase by creating a common market for mortgage financing and offering attractive and safe investment products. Secondly, there is a need to create favourable conditions for transition from the mortgage market of one country to that of another country in view of the increasing mobility of the labour force. Thirdly, there is a need to suitably organise the network of brokerage consulting services in order to provide the population with better choices and better access to more flexible and modern mortgage products. Fourthly, it is very important to enhance market transparency, as well as competitiveness, by unifying the payment procedures for various mortgage products and disclosing all costs related to the purchase of mortgage products.
Acquisition of housing is one of the major and most significant life investments; therefore, the impact of all proposals must be thoroughly assessed and considered. Presently, mortgage crediting is mostly developed within domestic markets and is very fragmented, while development of a common mortgage market is considered to be a possibility for the banks to offer their mortgage products via their branches in other European Union countries. Therefore, the creation of a new mortgage market will be a serious and demanding challenge for all of us.
Marek Aleksander Czarnecki
(PL) Mr President, it is at present difficult to speak of a common European financial market. The financial market is highly fragmented, which causes legal, fiscal and regulatory problems. The majority of mortgages on the market are financed by the savings of small savers. Less than 40% of mortgages are financed by the capital markets, whose share is growing slowly, although this growth is insubstantial.
In Sweden and Germany there are quite extensive markets in mortgage bonds. In Denmark, for example, mortgage institutions issue bonds to the entire value of the mortgage credit. While the market for mortgage credit-based bonds is strong in many EU countries, there are some countries where they do not exist at all.
Over the last decade or so this market has also advanced a great deal in Poland, and this has had a substantial effect on economic growth. Seeing what a great impact this has had on the markets in our countries, I support the establishment of a legal framework allowing for effective portfolio transactions to be carried out.
Charlie McCreevy
Member of the Commission. Mr President, we are completing the consultation process launched by the Green Paper. Creating cross-border opportunities for lenders and borrowers raises important, but also very difficult, policy questions. There is no easy or quick fix.
Over the next couple of weeks, I will be discussing with my services the options available for moving forward. Parliament's balanced report is an important contribution to this. I thank Mr Purvis and Mr Medina Ortega.
President
The debate is closed.
The vote will take place today at 11.30 a.m.
