IMLA has urged that the European Commission’s Directive on credit agreements relating to residential property does not impose restrictive regulations that damage national markets which are developing at different rates and in different ways.
IMLA argues that the UK has one of the largest and most sophisticated mortgage markets of all the EU member states, particularly in terms of intermediated distribution.
Launching its briefing paper on the proposals, IMLA Executive Director Peter Williams said:
“The draft EU directive poses a range of challenges for national markets. The UK has moved ahead in recent years to reform its national market in light of the concerns that inform the EU process.
"IMLA is concerned that any EU directive could cut across this. It is essential that there is sufficient national discretion to allow UK reforms to be accommodated within the EU framework.
“EU housing and mortgage markets display significant differences in culture, scale and mix of tenures. Whilst providing baseline guidance on consumer protection, IMLA would argue it is important that the Directive does not impose solutions that damage national markets which are developing at different rates and in different ways.
"We would therefore favour a high-level principles based approach that does not result in duplication or additional costs where significant progress has been made with consumer protection in individual markets as has been the case in the UK.”
On specific measures included in the EU Directive, IMLA holds the following position:
Disclosure
The UK has been using the KFI document since 2005. However, there is little evidence that the information provided in these documents is used as the regulator intended: consumers do not make more rational decisions and do not "shop around" to the extent that was anticipated.
It is this fact that is now driving the UK regulator towards a more prescriptive approach to regulation.
However, it was the move towards a KFI in the UK some years ago that triggered the development of the European Standardised Information Sheet (ESIS) and this process has continued to unfold.
We thus find ourselves stepping back from the KFI in the UK at a time when the EU might impose ESIS. In IMLA’s view, the ESIS appears to be of dubious value to consumers and will cost many millions of pounds if lenders are required to change their systems and processes in order to introduce it.
Credit assessment
The proposed requirement to assess the level of credit knowledge and experience appears to be unrealistic and unworkable in practice. There are no proposals as to how a lender or intermediary may go about this process or what value the level of knowledge or experience might have in underwriting any specific agreement.
Furthermore it would not seem equitable if consumers with a lower level of knowledge or experience were selected against in the credit process.
In a similar way, the requirement to deny credit to those that are deemed to have "negative creditworthiness" disregards the fact that many individuals can suffer some level of adverse credit but still represent an acceptable credit risk going forward.
It is vital therefore that lenders and intermediaries are allowed to bring forward solutions for consumers that may have experienced financial difficulty in order to avoid excluding a significant proportion of consumers from access to home finance.
Scope Extension to buy-to-let
IMLA does not believe that the Directive is an appropriate vehicle to regulate commercial lending markets and in particular the provision of finance to the private rented sector in the UK. EU markets differ significantly in the mix of tenures and in the structure of rental markets.
The UK market is relatively small but needs to expand quite rapidly to meet an expansion in demand being driven by a wide range of social economic and demographic factors. Unlike other EU markets, there is little institutional investment in the UK private rented sector with the bulk of property owned by private investors.
The financial dynamics of buying and holding rented residential property in the UK are such that the market will continue to rely upon the motivation of private individuals for the supply of rented housing and they in turn will rely upon the supply of buy-to-let finance to facilitate the required growth.
The inappropriate regulation of buy-to-let therefore as a consumer rather than commercial activity risks imposing constraints on the market that are not warranted and will have serious impacts upon the supply of property to the sector.
