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Mortgage costs will increase under EC plan, say lenders

14th September 2005 | back to article listings BACK    print this article PRINT

The Council of Mortgage Lenders (CML) has warned that European Commission (EC) plans to encourage cross border lending could result in the mortgage approval process becoming more expensive and bogged down in administrative paperwork.

The EC has announced that it wants to abandon national borders in mortgage provision and encourage home owners and property investors to take out loans with providers in other EU countries, as part of the drive towards more integrated financial markets.

The UK mortgage industry is the most sophisticated in Europe and accounts for a total of 15 per cent all mortgage lenders. The CML fears that an expected surge in demand from property investors and home owners across Europe would seriously overburden its members' administration.

Providers would also be forced to converge their IT systems, lending procedures and complaints processing with other EU countries, with the eventual cost being passed onto borrowers through increased rates or higher application fees.

"It is ironic that the UK market is held up as a model for the rest of Europe, but with a potential set of proposals that would then undermine it," said CML director general Michael Coogan.

"We are glad that the Commission is listening to our views and we urge it to take practical steps to remove operational barriers rather than pursue theoretical attempts to stimulate cross-border shopping."

The London Economics report has estimated that the cost of installing an integrated system of regulation would remove more than a quarter of mortgage lenders net revenues, while adding no extra benefit.

Only one per cent of EU citizens hold mortgages with providers based outside their home country, says the CML, with there being little proof that there is any real demand for it.

The CML believes that cross EU competition would be improved if its members were able to choose the markets they entered into. It has called on the EC to re-examine the barriers that prevent its members from operating abroad rather than installing a single one size fits all system.

The EC will be examining the response to the green paper which contained the announcement before it releases more definite plans in December. The CML represents providers responsible for around 98 per cent of all mortgages in the UK.

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