EU Working Towards Integration Of Mortgage Market

by Ulrika Lomas, for LawAndTax-News.com, Brussels

16 September 2005

The European Commission has published a study on the costs and benefits of further integration of the EU mortgage credit market, putting the value to the EU economy of such increased integration over the next ten years at Eur 94.6bn.

The study was carried out on behalf of the EC by UK based economic consultancy London Economics, and follows the recent publication of the Commission’s Green Paper ‘Mortgage Credit in the EU’. The Green Paper provided the Commission’s initial views on the recommendations of the Mortgage Credit Forum Group report and other matters relating to the EU mortgage credit market, launching a wide-ranging consultation, which will remain open until 30th November 2005. The study is part of the overall review and consultation process and the Commission will review the study carefully, as part of its assessment of the business case for Commission intervention in the EU mortgage credit market.

Internal Market and Services Commissioner, Charlie McCreevy said “This is an important element in the consultation and review process which we launched in July. It is part of our ongoing assessment of whether Commission action can increase competitivity and help bring about improvements in choice and value for the buyer. I want to underline that I am in listening mode and to encourage people to let their views be known to us.”

The study estimates the current (2005) value to the EU economy of such increased integration over the next ten years at Eur 94.6bn, which amounts to 0.89% of current EU GDP. By 2015, the study estimates that integration of the EU mortgage credit market would raise EU GDP by 0.7% and private consumption by 0.5%. The study finds also that there is demonstrable appetite, amongst consumers, in given circumstances, to engage in mortgage credit transactions with foreign lenders, with more than 50% indicating that the foreign identity of lenders would not discourage them from taking advantage of attractive mortgage credit offers. Lenders too showed signs of interest in increasing activity across borders, with over 70% showing an interest in opening branches or subsidiaries in other Member States and at least 60% showing an interest in other forms of cross-border activity, such as mergers and acquisitions with foreign lenders.

This interest in different kinds of cross-border activity is reflected the Commission’s view that integration in the EU mortgage credit market can occur in many ways such as lenders establishing branches/subsidiaries or using intermediaries in other Member States, free provision of services (where the consumer is in one Member State and the lender in another), greater cross-border activity in the funding of mortgage credit and mergers/acquisitions across borders.

The Commission says it remains open on the relative merits of these mechanisms and the contribution that they can make to the creation of a European market for mortgage credit. The study analyses the costs and benefits of integration through all mechanisms, reflecting this wide-ranging approach, as does the Commission Green Paper.

The conclusion of the consultation on the Green paper will be marked by a public Hearing on Mortgage Credit, to be held on 7 December 2005.

Thereafter, having fully considered the results of this in-depth consultation, the Commission will decide on if and how intervention is merited in the EU mortgage credit market, presenting its conclusions in a White Paper in mid-2006.

A previous Green Paper issued in May focused primarily on implementing existing rules agreed under the Financial Services Action Plan (FSAP) and on cooperation, rather than proposing new laws, and explored ways of improving cross-border access to retail financial services and asset management.

The Commission examined ways to make cross-border use of bank accounts more consumer friendly and to break down barriers so that customers can shop around all over Europe for the best savings plans, mortgages, insurance and pensions, with clear information so that products can be compared.

Other issues covered in the May Green Paper included ensuring that supervisory practices and standards converge across Europe, encouraging cross-border investment and taking advantage of Europe’s strategic opportunity to influence the regulatory parameters of the emerging global financial market.

Internal Market Commissioner Charlie McCreevy said in May: "Sequels to even the best originals tend to exhaust people’s enthusiasm, so there will be no FSAP 2. The key message is to consolidate the progress towards European financial integration over the next 5 years. Financial services integration has to produce real, tangible benefits for the citizens of Europe. People should be able to see lower costs for their financial needs, better pensions, and cheaper, safer retail financial products. So that is why I want to examine the retail and asset management areas very carefully, subjecting any new ideas to the rigorous “better regulation” agenda."

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