European Mortgage Federation

How do you view the Commission’s assessment of the integration of Europe’s mortgage markets?

It was in 2003 that the European Commission announced its intention to examine whether or not there is margin for further integration of EU mortgage markets that could be of benefit to both consumers and lenders. This decision came further to the publication of a number of studies concluding that the integration of retail financial services markets in the EU continues to be insufficient,

On the principle, the EMF is clearly in favour of further integration insofar as the areas where there is room for such integration are identified, the means chosen to achieve this integration are adequate and proportionate and that such action would bring direct benefits for Consumers and Industry alike. In this respect, it is important to recall that the evidence provided by the EMF/MercerOliverWyman (EMF/MOW) Study published in 2003, the London Economics Report published in August 2005 and the ECB Study on EU Banking Structures published in October 2005 indicates that EU mortgage markets are already broadly efficient and competitive.

The findings of the updated 2006 EMF/MOW Study on Adjusted Pricing also show increased competition in a number of EU Member States. These developments since 2003 clearly demonstrate that integration is occurring mainly as a result of market forces and new entrants into the market.

Significantly, in the Commission’s recent Green Paper on Retail Financial Services, in the context of price variations, home loans are expressly singled out as an area, contrary to other areas, where prices (i.e. mortgage rate levels) have converged significantly.

So do these developments mean that there is no room for further integration?

No, the EMF believes that there is room for further integration, especially in terms of market completeness and cross-border activity, and that there are benefits to be derived from this.

How could this further integration be achieved then?

The EMF strongly believes that secondary markets should be the main priority with a view to bringing about further integration. This is why the Federation contributed to and strongly welcomed the Report of the Commission’s Mortgage Funding Expert Group (MFEG) which, among other positive outcomes, establishes clearly the close link and interdependence between primary and secondary markets.

In this way, it confirms the Federation’s position insofar as it describes how increased integration of EU funding markets could, through costs reductions, improved capital management and increased competition, result in lower mortgage costs and higher product diversity for borrowers.

Consumer protection issues have come under a lot of scrutiny in the Commission’s assessment. What are your views in this respect?

The fact that evidence tends to show that cross-border activity depends on lenders going abroad means that the EMF does not believe that consumer protection measures will have a direct impact on integration. Indeed, if any action at all is deemed necessary, the obstacles to be addressed first should be those legal infrastructural issues, which deter lenders from going cross-border, such as transparency of enforcement procedures and cross-border access to land registers and credit databases (as correctly identified in the MFEG Report).

Despite this view, the EMF willingly participated in the Commission’s Mortgage Industry and Consumer Dialogue Group (MICDG), which was set up to consider consumer protection related issues. The EMF was particularly willing to provide input with regards to the information requirements in the Code of Conduct. Indeed, during the original negotiations of the Code, it was the Industry’s view that the Code should be a flexible instrument to be reviewed on a regular basis. Interesting ideas were developed during the Dialogue discussions on the question of pre-contractual information and the EMF feels that the debate on the content of the Code’s European St andardised Information Sheet has helped identify relevant issues for some meaningful modifications to the Code.

While the Industry itself did not come forward with requests for modification, it was open to proposals from the consumer representatives, on the basis that there was evidence of consumer benefit. In this context, a number of consumers’ requests, such as risk warnings and information on foreign currency loans, were considered to be interesting by the Industry. As stated during the Dialogue, the EMF is interested in continuing the exchange with consumer representatives with a view to refining the principles highlighted.

The EMF strongly supports the provision of adequate information i.e. information which is complete, sufficient, focused on cost elements and also well balanced in order to avoid information overload. As such, the EMF is in favour of maintaining the Code under its current (voluntary) status, improving its efficiency and facilitating its application to all of the EU Member States. The EMF is convinced that the Code and specifically its ESIS is the adequate tool to enable consumers to make informed decisions based on transparent comparison. By now, the Code is widely implemented in 19 Member States, with others currently examining this possibility.

What are the next steps?
The 4-year assessment by the Commission of the integration of Europe’s Mortgage Markets will culminate in the publication of its White Paper on Mortgage Credit and Impact Assessment, which are planned for December 2007.
In the meantime, many of the key issues raised over the last 4 years will be under discussion at the EMF’s Annual Conference 2007, which will take place in Brussels on 21 and 22 November 2007. Interested parties can find more information at www.emfconference.org

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