The impact of the mortgage credit directive in Europe

Preface

Contents

Abbreviations

 

Part I: Introduction

 

Chapter 1 Crisis? What Crisis? Common EU Rules for Mortgage Credits

Esther Arroyo Amayuelas

I Introduction

II The Financial and Housing Crisis

III Common EU Rules for the Mortgage Credit

1 The Scope of the MCD and Opt-Out Options

2 Responsible Lending

2.1 Transparency: Information and Explanation Duties and Advice Services

2.2 Tying and Bundling Practices

2.3 Cooling-off Period / Right of Withdrawal

2.4 Creditworthiness Assessment

5 Early Repayment

6 Foreign Currency Loans

7 Valuation Systems

8 Mortgage Enforcement Proceedings and Arrears

IV Final Remarks

 

Chapter 2 What is Mortgage Credit?

Peter Sparkes

I Introduction

II ‘Credit’: the Challenge of Islamic Finance

III Lenders

IV Consumer Loans

V Homes as ‘Residential Immovables’

VI Security

1 ‘Collateral’

2 ‘Mortgage’

3 Mortgage Equivalents

VII Home-Acquisition Loans

1 Purpose-Based Inclusion in Mortgage Credit, Exclusion from Consumer Credit

2 What Drives the Statement of the Scope of Mortgage Credit?

3 Problems in the Mortgage Market

4 Standardised Information

VIII Other Purposes: Bolt-Ons and Exclusions

1 Bridging Finance

2 Acquisition of Buy-to-Let Property

3 Acquisition of Non-residential Immovables

4 Renovation of Homes

5 Equity Release

IX Conclusion

 

chapter 3 The Spanish Crisis and the Mortgage Credit Directive: Few Changes in Sight

Miriam Anderson & Hector Simon Moreno

I Introduction

II The Spanish Property and Mortgage Markets: A Recipe for a Crash

1 The Property Bubble and What Happened When it Burst

2 An Ill Wind that Blows Some Good: Purging Unfair Terms in Consumer Mortgage Loans

2.1 Default Interest Rates

2.2 Acceleration Clauses

2.3 Interest Rate Floors

2.4 Ancillary Expenses

2.5 Deposits or Other Advanced Payments Made When Consumers Acquire Immovable Property May Render Transparency Provisions Ineffective

3 What About ‘Unfair Products’?

3.1 Interest Rate Swaps and Other Interest Rate Limitation Products

3.2 Foreign Currency Loans

3.3 Reverse Mortgages

3.4 Buy-to-Let Schemes

3.5 Bridging Loans

4 Unfair Commercial Practices, Irresponsible Lending and Non-Regulated Intermediaries

5 The Role of Notaries or Other Professionals in Conveyancing and Mortgaging. Property Appraisal Companies

6 A New Form of Torture: Assignment of Secured Credits to Investment Funds

III The Expected Impact of the MCD in Spain

1 Transposition Running Late

2 The Scope of the Foreseeable Transposition

3 Staff Remuneration and Skills. Advisory Services

4 Pre-contractual Information

5 Tying and Bundling Practices

6 The APRC and Art. 17 MCD

7 Creditworthiness Assessment and Property Appraisal

8 Foreign Currency Mortgages

9 Variable Interest Rate Indices Fixed Among a Reduced Number of Creditors

10 Early Repayment

11 Default Charges

12 The Creditor’s Right to Enforce: Is It Limited?

13 Tracking the Property Market

IV A Few Relevant Issues for Spain that the MCD Does not Solve

1 Reasonable Forbearance Prior to Enforcement

2 Deficiency Judgments and ‘Facilitated Repayment’

3 Absence of European Law Remedies

4 Securitisation, Modification of Existing Mortgage Loans, Unfair Terms and Risk Warnings

5 The Harmonization of the Mortgage Market: Abandoned for Good?

V Final Remarks

 

Part II: National Reports

 

Chapter 4 Consumer Credits for Immovables in Belgium and France Benjamin Verheye & Vincent Sagaert

I General Overview of Consumer Credits Secured by Immovables

1 Belgium

1.1 Relevance of Consumer Credit for Immovables: ‘A Brick in the Stomach’

1.2 Belgian Legislation Prior to 2014

1.3 Scope of the MCA

1.4 Highlights and Objectives of the MCA

2 France

2.1 French Legislation Prior to 2014

2.2 Focal Points of the French CLC with Regard to Mortgage Credit

II The Impact of the MCD

1 Implementation Measures in Belgium

1.1 Overview

1.2 Codification of the MCA

1.3 Implementation of the MCD in Belgium

2 Implementation Measures in France

3 Focal Points of the MCD as Implemented in Belgian and French Law

3.1 Scope of Application of the MCD

3.2 The Implementation of Some Focal Provisions of the MCD in Belgian and French Law

III Conclusions: Consumer Protection Reinforced and New Substantial Rules

 

Chapter 5 Secured Consumer Credit in England

Sarah Nield

I Introduction

II A Brief Oveview of Housing Policy

III An Overview of Consumer Credit Secured on Immoveables

1 Home Purchase

2 Business Lending Secured on the Home

3 Secured Consumer Credit

4 Buy-to-Let (BTL) Mortgages

5 Equity Release Schemes: Lifetime Mortgages and Home Revision Plans

6 Home Purchase Plans

IV Consumer Mortgage Regulation in England

1 The FCA’s Statutory Objectives

2 Licensing

3 Standard Setting

4 Monitoring, Compliance and Disciplinary Action

5 Consumer Redress

V The UK’s Response to the Financial Crisis

1 Minimising Home Repossessions: Forbearance, Safety Nets & Exit Routes

2 Conduct Standards: The Mortgage Market Review

2.1 Information Disclosure (MCOB 5, 5A, 6, 6A, 7A, 7B)

2.2 Affordability (MCOB 11,11A)

2.3 Stress Testing for Added Risks (MCOB 11, 11A)

2.4 Interest-Only Mortgages (MCOB 11, 11A)

2.5 Advice-Only Sales (MCOB 4, 4A)

2.6 Particular Borrowers and Borrowing (MCOB 5, 5A, 6, 6A, 7, 7A, 7B)

VI Concluding Remarks: Are the MMR and MCD Enough?

1 Mortgages as Financial Products

2 Mortgages as the Gateway to Home Ownership

3 The Balance of Mortgage Risk

VII Appendices

 

Chapter 6 The Transformation of the Mortgage Credit Directive in

German Law

Dieter Krimphove & Christoph Luke

I A General Overview of Consumer Credits Secured by Immovables in the German Legal System

1 The Importance and Value of Encumbrances on Real

Property in Recent German History

1.1 German Law of Condominium

1.2 Loan Securities: Mortgages, Land Charges and Annuity Land Charges

1.3 The German Abstraction Principle

1.4 The Principle of Publication of Rights in Rem

II The Impact of Directive 2014/17

1 The Transposition of the Directive in German Law

1.2 The Definition of the Consumer Credit Agreement

1.3 Pre-contractual Information in Advertising

1.4 Pre-contractual Information and ESIS

1.5 The Creditworthiness Assessment

1.6 Standards for Advisory Services

1.7 Tying and Bundling Practices

1.8 Foreign Currency Loans

1.9 Competence and Remuneration of the Staff

1.10 The Right of Withdrawal and the Period of Reflection

1.11 Early Repayment

2 Primary Evaluation of the MCD Provisions

2.1 The Extension of the MCD Requirements to General Consumer Credit

2.2 Parallels to the Regulations on Securities

3 The Economic Impact of Directive 2014/17

3.1 The Economic Impact of Advertising

3.2 The European Standardised Information Sheet (ESIS)

3.3 The Economic Impact of the Creditworthiness Assessment

3.4 The Information Overload

III Relevant Issues That Directive 2014/17 Does Not Solve

1 The European Law of Property

2 The Economic Necessity of Harmonization of National Property Law

IV Conclusions

 

Chapter 7 The Transposition of Directive 2014/17 in Greece

Anastasios Moraitis

I General Overview of Consumer Credits Secured by Immovables in Greece – Stocktaking of Residential Construction Financing in Greece and Special Issues

1 Trends in Housing Construction and Its Financing in Greece

2 Impact of the Greek Sovereign Debt Crisis

3 Protectionist Measures

4 The Issue of ‘Red Loans’ and Plans to Deal with Them

5 Housing Loans in Swiss Francs

6 Backdrop of the Transposition of the MCD

II The Impact of the MCD in Greece

1 The Transposition Process

2 The Transposing Law in Detail and Its Relation to the MCD

2.1 General Remarks

2.2 Definitions

2.3 Competent Authorities

2.4 Conduct of Business and Staff Knowledge Requirements

2.5 Pre-contractual Information and Practices; APRC

2.6 Creditworthiness Assessment, Database Access and Advisory Services

2.7 Loans in Foreign Currency

2.8 Sound Execution of Credit Agreement

2.9 Establishment and Supervision of Credit Intermediaries/Non-Credit Institutions – Cooperation Between Member States

2.10 Sanctions/Final Provisions

III Problems that the MCD Does not Solve

1 Existing Loans in Foreign Currency

2 The Treatment of Claims in Arrears

IV Conclusions

 

Chapter 8 To Learn and to Forget: Lessons from the Irish Mortgage Crisis

Mark Jordan

I Introduction

II The Irish Housing System and Mortgage Market

1 Mortgage Products in Ireland

2 From Boom to Bust: The Irish Mortgage Crisis

III Regulation of Mortgage Lending in Ireland and the MCD

1 Extension versus Exclusion: The Scope of the MCD

2 Lending Practices: Remuneration of Staff Working for Lenders

3 Pre-contractual Information (ESIS)

4 Tying and Bundling Practices

5 Annual Percentage Rate of Charge

6 Creditworthiness Assessment

7 Property Valuation

8 Foreign Currency Loans

9 Variable Interest Rates

10 Early Repayment

11 The Right to Enforce the Security

12 Charges upon Default

IV Assessing the MCD in Irish Mortgage Law

V Conclusion

 

Chapter 9 The Impact of Directive 2014/17/EU in Italy

Elena Bargelli & Giulia Donadio

I General Overview

1 Credits for Consumers Secured by Residential Immovable Property in the Italian Legal System Prior to the Implementation of the MCD

2 Recent Trends in the Housing Market and an Increase in Mortgage Enforcement over Immovables Secured for Consumer Credits

3 The Role of Professionals (Bank Practices and Notaries)

4 The True Culprit: The Economic Crisis

II The Impact of Directive 2014/17

1 General Overview of the DLeg 72/2016 Implementing the MCD

2 Remuneration of Staff Working for Credit Institutions, Intermediaries or Representatives Prior to the Implementation of the Directive

3 Pre-contractual Duties and Information

3.1 Advice and Advisory Services

3.2 Advertising and Pre-contractual Information

3.3 Tying and Bundling Practices

3.4 Annual Percentage Rate of Charge

3.5 The Creditworthiness Assessment

III Special Issues on Consumer Protection

1 Foreign Currency Loans

2 Variable Interest Rates: The ‘Objective Index’ and the Duties of Information on Any Variation in Contractual Terms

3 Early Repayment

4 Non-Performance

4.1 The Right to Enforce and the Usefulness of a Specific Price Index

4.2 Reasonable Forbearance Before Foreclosure

4.3 Transfer of Property in Lieu of Payment Prior to the MCD

4.4 Default Charges

IV Important Issues that the MCD Does not Solve

1 Important Issues That Fall Outside the Scope of the MCD

2 Relevant Issues Falling Within the Scope of the Directive

V Conclusions

 

Chapter 10 The Impact of Directive 2014/17 in Malta

Kurt Xerri

I Introduction

II General Overview of Consumer Credits Secured by Immovables

1 The Preference for Ownership

2 Securities over Immovable Property under the Maltese Civil Code

3 Foreign Investment in Immovable Property

4 Effect of the Financial Crisis

III The Impact of Directive 2014/17 in Malta

1 The Transposition of Directive 2014/17

2 Impact of the Directive

2.1 Existing Regulatory Measures at the Time of the Implementation

2.2 Judicial Challenges to Credit Agreements

2.3 The Parliamentary Debates

2.4 The Response by the Malta Bankers’ Association (MBA)

3 Transposition of the Mortgage Credit Directive into Maltese Law

4 Issues Overlooked during the Transposition

4.1 The Creation of Social Banks and Lending Through Socially-Oriented Schemes

4.2 Foreign Currency Loans

4.3 Remedies Available to the Aggrieved Consumer

5 The Regulatory Bodies

IV Final Comments

 

Chapter 11 Quia Domus Tutissimum Cuique Refugium Atque Receptaculum Sit. The Mortgage Directive in Dutch Law

J. Michael Milo

I Introduction

II An Overview: Acquiring Houses on Credit in the Netherlands

1 Facts and Factors

2 The Dutch Civilian Framework

3 Selling and Transferring Residential Property

4 Financing Residential Property: The Obligational Side

5 The Mortgage

III The MCD Implementation in Dutch Law

1 Implementation of the MCD in The Netherlands

2 Implementation in the Civil Code

2.1 In General

2.2 On General Provisions and Scope

2.3 On Advertisements

2.4 Tying and Bundling Practices

2.5 On Information Before the Contract

2.6 On Contractual Obligations

IV Relevant Issues that the MCD Does not Solve

V Conclusions

 

Chapter 12 Implementing the Mortgage Credit Directive 2014/17 in Poland. Challenges and Dilemmas

Magdalena Habdas

I The Emergence of a Property Market after Poland’s 1990Shift to a Market Economy

II The Situation of Housing and Housing Preferences

III The Mortgage Credit Market at the Onset of the Global Financial Crisis

IV The Current Mortgage Credit Situation

V Legal Aspects of Mortgage Credit

1 The Essence of the Bank Loan Contract

2 Consequences of Granting Credit Despite the Lack of Creditworthiness

3 The Problem of the Overprotection of the Creditor

VI Problematic Lending Practices and Bad Credits

1 LTV Ratios and Unfair Contract Terms

2 Problems with Foreign Currency Loans

3 Continuing Disputes Concerning the Validity of Foreign Currency Mortgage Credit Contracts

VII Difficulties in Implementing the MCD

VIII Conclusions

 

Chapter 13 The Impact of the Mortgage Credit Directive 2014/17/EU. Views from Portugal

Mariana Fontes da Costa

I A General Overview of Consumer Credits Secured by Immovables in Portugal

II The Expected Impact of the MCD in Portugal

1 Information and Advertising Duties

2 Tying and Bundling Practices

3 Early Repayment

4 Staff and Credit Intermediaries

5 Creditworthiness Assessment, Property Evaluation and Default

III Relevant Issues that Require Further Thought

IV Conclusions

 

Part III: Conclusions

 

chapter 14 Comparative Remarks on the Impact of Mortgage Credit Directive 2014/17/EU. Operating Credit Agreements and Powers of the Mortgagee

J.M. Milo

 

I Introduction

II On the Factual and Normative Fabric in Our Jurisdictions

1 The Factual and the Normative

2 Facts: Diverse Markets for Financing and Housing

3 Norms: Fairly Uniform Framework v. Diverse Sources and Substance

III On the Credit Agreement: Obligations and Non-Performance

IV On the Mortgage and its Powers

V Conclusions

 

Index