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Harmony strikes the wrong chord

In a speech last week, FSA chairman Lord Adair Turner said future developments in the European Union towards improved macro-economic coordination and financial stability should not apply a burden of “unnecessary integration” on non-Euro members.

After Turner’s inept performance at the Treasury select committee about the mortgage market review in March, it was encouraging to read such a wise comment.

I do not know whether, in addition to his main focus of macro prudential regulation, Lord Turner also had in mind the EU mortgage directive when he made this observation but it is to the EU’s shame that it is so wedded to the principle of harmonisation that it fails to recognise that despite harmonisation being of benefit to the consumer in some areas, mortgages is not one of them.

In February, I attended a helpful briefing in Westminster about the proposed EU mortgage directive. This was given by Conservative MEP Vicky Ford, a shadow rapporteur.

Before the briefing, the notes said that members of the economic and monetary affairs committee were expected to vote on the report at the end of February.

However, Ford said that despite the vote having originally been scheduled for late last year, she expected it to be delayed further because there were “so many other more important things” for the committee to deal with. The vote has since been deferred twice and is currently scheduled for May 8.

Some EU countries with little or no mortgage regulation may welcome help from Brussels but the UK is in a very different place. The euro experiment is a classic example of the economic facts of life being ignored to satisfy political ideology. The negative impact of harmonising mortgage regulation will not be on the same scale but lessons should be learnt from such a massive harmonisation failure as the euro project.

The EU has been considering a mortgage directive since the mid- 1990s and, as Ford said, there are many more important things for it to spend its time on. The promoters of this flawed concept are so naive about the real world that they justify it by saying harmonising regulation throughout the EU will allow consumers to shop around for their mortgage in all 27 EU countries.

This is technically true but irrelevant. Even with an EU directive, different legal processes in relation to property and the multitudinous ways that information is provided by credit reference agencies (in those countries which have one) mean the only realistic way for a lender to operate outside their home base is to establish a subsidiary or branch in the country they want to operate in, which they can already do, provided they satisfy the regulatory authorities in that country.

Ray Boulger is senior technical manager at John Charcol

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