The Commission said the objectives were two-fold: "First, it aims to create an efficient and competitive single market for consumers, creditors and credit intermediaries with a high level of protection by fostering consumer confidence, customer mobility, cross-border activity of creditors and credit intermediaries, and a level playing field. Second, the proposal seeks to promote financial stability by ensuring that mortgage credit markets operate in a responsible manner."
The reality, however, is that national mortgage markets are highly idiosyncratic and likely to remain so even if the Directive is implemented. Property valuation and registration, and different funding mechanisms and consumer product appetites will not be addressed by the proposals. So it seems unlikely that a single market will emerge as an outcome of the Directive.
Consumer protection, meanwhile, is already being addressed extensively within those national markets – including the UK – that have borne the brunt of the impact of the financial crisis. Some of the proposed regulatory approaches differ between the FSA and the Commission – for example, while the Commission sees disclosure as a key tool for improving borrowers’ buying decisions, the FSA is moving away from a reliance on disclosure as the main means to achieve that outcome.
And it is difficult to see that harmonisation at a European level will necessarily bring additional benefits, given the improbability of the emergence of an active market for cross-border lending.
CML director general Michael Coogan said: "We will need to scrutinise the Directive thoroughly, as well as the indicative impact analysis published alongside it, before drawing detailed conclusions. Even then, it may be difficult to work out the real impacts given that so many areas of the detailed policy will be delegated to the Commission to finalise and are not even included in the Directive itself at present.
"But what we can already conclude is that, for the UK at least, there is likely to be an unholy confusion of competing draft rules at a national and European level that will keep legal advisers gainfully employed for some time to come. Whether or not the end result will help UK consumers remains to be seen, but seems unlikely given that the FSA is at the more robust end of the European regulatory spectrum already.
"As we seek to work towards a UK response, we will be seeking evidence of the Commission taking a realistic view about how far its objectives will be, or can be, met through the Directive. As the largest mortgage market in Europe, the UK stands to bear significant financial and implementation costs, which means that a convincing case for EU level intervention is needed if the UK is to support it. That case does not appear self-evident at present."
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