The European Commission has put forward a legislative proposal showing its determination to ensure that irresponsible lending and borrowing practices are not repeated in the future, and to help consumers to regain confidence in the financial system. According to this new regulation, borrowers will enjoy a higher level of protection through robust rules concerning advertising, pre-contractual information, advice, creditworthiness assessment, and early repayment. The proposed Directive also aims to create a more efficient and competitive single market for mortgages by creating a level playing field for all actors involved and making cross-border activity easier.

The aim of the Commission proposal to regulate certain aspects of mortgages is to create a responsible, efficient, healthy and competitive pan-European market that works to the benefit of consumers. It should also promote customer mobility, cross-border activity of creditors and intermediaries, and create a level playing field for all actors involved.

The focus is to ensure that all consumers purchasing a property or taking out a loan secured by their home are adequately informed about the possible risks and that all institutions engaging in these activities conduct their business in a responsible manner. The proposed Directive covers all loans which allow the consumer to borrow money in order to buy a home as well as certain loans to consumers to renovate a home. It also covers all loans to consumers that are guaranteed by a mortgage or another comparable security.

The proposed Directive will introduce certain requirements for the advertising of mortgage credit and ensure that all institutions involved in the origination and distribution of mortgage credit to consumers are adequately regulated and supervised. It will also establish principles for the authorisation and registration of credit intermediaries and for the establishment of a passport regime for those intermediaries. This means that once authorised in one Member State, the intermediary would be allowed to provide its services throughout the Internal Market. Furthermore, it will ensure that lenders benefit from provisions enabling them to access information in credit databases on a non-discriminatory basis.

Lenders and credit intermediaries obligations

• make general information available at all times on the range of credit products they offer
• provide personalised information to the consumer through a European Standardised Information Sheet or so called "ESIS". This will allow consumers to compare mortgage conditions from different providers
• give explanations and meet certain standards for the provision of advice
• assess the consumer's ability to repay, based on information provided by the borrower
• credit intermediaries will be required to disclose certain information concerning for example, their identity, status and relationship with the creditor, to render transparent any potential conflicts of interest

Borrowers benefits

• benefit from extra information at all stages in the process of taking out a mortgage allowing them to make the right decisions for them
• benefit from a harmonised annual percentage rate of charge in line with that set out in the Consumer Credit Directive which will facilitate the comparability of advertising and the pre-contractual information
• have an obligation to provide the necessary information to enable an assessment of their ability to repay
• have an entitlement to repay their credit before the expiry of the credit agreement, subject to certain conditions to be determined by Member States