New laws on mortgages will end 'tragedy' of evictions, MEPs told


New laws to toughen the rules on mortgage lending will prevent the "personal tragedies" of people being evicted from their homes, MEPs have been told.

Lithuanian Finance Minister Rimantas Šadžius, representing the Council of Ministers, said the new Mortgage Credit Directive (MCD) would lead to responsible lending and more informed borrowing.

The directive, debated by MEPs on 10 September 2012, is a response to the property boom in many EU countries - such as Ireland and Spain - that many people believe was responsible for causing the Eurozone debt crisis.

New rules will mean that borrowers will be refused a mortgage if they fail a standard affordability assessment.

However the directive makes it easier for consumers to shop around for their loans.

There will be a standard information sheet given to borrowers to explain how to find a mortgage that suits their needs, and a crackdown on misleading advertising.

Mortgage lenders will also be forced to include a cooling-off period for anyone signing up, and a general right to an early repayment will be introduced.

Mr Sadzius said that a lack of regulation had led to "ill-informed and vulnerable customers being encouraged to take excessive risks, with dangerous results both for the financial markets and for the families involved, who suffered the tragedy of being evicted from their home".

'One size fits all'

The parliament's negotiator on the directive, Spanish socialist MEP Antolín Sanchez Presedo said the directive would mean the EU was at the "avant-garde of promoting responsible legislation".

He drew attention to the fact the directive would ensure that all mortgage lenders would have to meet minimum criteria for skills and qualifications.

However Belgian green MEP Philippe Lamberts said he wished the directive had gone in even further and said that MEPs should have pushed for the introduction of strict limits on the size of loans, and the so-called "loan-to-value" (LTV) level.

Criticism of the directive came from British Conservative MEP Vicky Ford who said it was impossible for a "one size fits all" law on mortgages to be introduced across the EU.

She pointed out that home ownership rates varied wildly across the EU, from over 90% in Hungary and Estonia, to less than 50% in Germany.

However she welcomed a decision to exempt the buy-to-let market from the scope of the directive, arguing that this would have "effectively shut down the private rented sector, affecting millions of tenants in the UK".

The proposals - which are due to come into force in April 2014 - were broadly supported during the daily voting session later in the day, however a final vote was postponed to allow for last-minute negotiations on various technicalities to be carried out.

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