Mortgage experts say the European Commission’s internal markets and consumer affairs committee’s proposal to exempt mortgages worth more than €2m from the EC’s mortgage directive is “arbitrary” and “crude”.
Two committees, economic and monetary affairs and internal markets and consumer affairs, have scrutinised the directive and put forward their amendments.
The Econ committee published its report in July while the Imco report was published this month by rapporteur Kurt Lechnar.
Perhaps Imco’s most notable proposal is that borrowers who take out mortgages worth more than €2m should be exempt from the directive.
This means high-net-worth borrowers would be able to avoid afford-ability assessments and could allow intermediaries to avoid disclosing commission.
SPF Private Clients managing director Mark Harris says high-net-worth clients should be treated differently because often they have irregular income streams but regulatory standards should not be lowered.
He says: “All consumers require the same level of protection. We have always argued that large ticket loans should be assessed differently but it should not mean a lack of regulation.
“Basing this proposal on loan size is a rather crude way of tackling this. I think if the mortgage is under someone’s own name, it should be a regulated contract.
But if you are arranging a mortgage in trust, you do not need to afford the same level of protection to the consumers because that person clearly has a lot of advisers telling him what to do.”
In February, the EC implemented the consumer credit directive, which is a harmonised set of rules concerning the way credit cards and personal loans are advertised and how the applications are assessed. Individuals looking to take out loans of over £60,260 are exempt from the regulations.
Building Societies Association head of mortgage policy Paul Broadhead believes Icon’s recommendations are just a continuation of the CCD. He argues that all mortgages should be regulated by the same set of proposals, regardless of size.
He says: “The arbitrary cut-off of €2m would need to keep being revisited because of the effect of inflation. Logic says if it is a mortgage, it should be captured by the directive.”
Emba group sales and marketing director Mike Fitzgerald says: “This is not like absolving first-time buyers from stamp duty, which is a good thing. It is removing a form of protection for a whole group of people.”
Mortgageforce managing director Kevin Duffy says it is possible the exemption could create an uneven playing field by lowering compliance costs for brokers who operate in the high-net-worth sector.
He says: “There is the potential for a perceived prejudice in so far as brokers and consumers operating above the threshold may be being subject to lighter-touch regulation whereas the multitude of brokers in the UK arranging mortgages for £100,000 or so would have proportionately higher compliance costs because of the ruling.”
Another amendment the Imco report put forward was to remove the requirement for lenders to explain to borrowers why their application has been rejected. It argues there should be no obligation for lenders to do this.
Association of Mortgage Intermediaries director Robert Sinclair hopes lenders will not use the amendment as a reason to stop communicating with brokers and borrowers.
He says: “We can understand why the proposal has been watered down but we would hope lenders do not hide behind that. Good lenders share information with intermediaries on a regular basis.”
The report also recommends watering down a proposal in the EC’s directive which says lenders and intermediaries would have to consider a “fair and sufficiently wide-ranging” analysis of products on the market, leading to speculation that lenders could get rid of their tied advice arms.
The Imco report recommends that lenders and intermediaries can offer a limited range of products as long as customers are made aware of it.
Broadhead welcomes the move. He says: “It is good the committee that represents consumer protection recognises the importance of consumer choice in advice and as long as lenders let borrowers know what they are advising on, then it poses no problems.”
However, Sinclair warns the proposal may disadvantage intermediaries. He says: “We are concerned the amendments are particularly contradictory and we will be asking for clarification to ensure there is a level playing field across tied and intermediated distribution.”
The Econ and Imco committees will now compile a single report, which will be passed to the European Parliament and then the Council of the EU.