New rules from Europe which impose a “standard affordability assessment” will mean that borrowers across the European Union could find it more difficult to get a mortgage in the future.
A new Mortgage Directive from the European Commission is designed to prevent a repeat of the reckless mortgage lending which in the past lead to the problems with the banking sector. The key feature of the new system is a standard credit worthiness assessment which will judge whether or not the applicant can afford the mortgage that they’re applying for.
The scheme is also designed to crackdown on misleading advertising, will allow a cooling off period for anyone signing up to the mortgage and will impose an obligation on lenders to be sympathetic towards customers who are having trouble paying their loans, without just resorting to repossession.
EU Internal Market Commissioner Michel Barnier commented that:-
“The financial crisis started with the subprime debacle in the United States where mortgages were being handed out with no background checks carried out on whether consumers could afford them, and ill-informed and often vulnerable consumers were encouraged to take excessive risk,”
“We have seen similar excesses in Europe, for example with the housing booms and the inevitable busts which followed in Spain and Ireland.”
He said the consequences had been enormous, with many people losing their homes to repossession.
“This directive will help put an end to these excesses and foster responsible lending practices,” he added.
“Consumers will finally get the protection they deserve. They will be better informed so they can choose the mortgage product which best meets their needs, at the best price, and fully aware of the risks they are taking.”
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Rebecca Gunn specialises in Employment law, Commercial Property & Residential Property and is a solicitor in our Leicester office.
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