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EU directive on lending offers little benefit

Nia Williams

April 4, 2011

Commenting, she said: “Given that the damage done to global financial markets is largely being blamed on the collapse of the structured finance markets that were underpinned by residential mortgages, it is unsurprising that the proposed mortgage market EU Directive has been tabled. However, much of the detail is yet to be finalised and the extent of its impact on the UK is hard to predict.

“The Directive proposes that every mortgage applicant rejected via an automatic decision system is entitled to an explanation from the lender. While this might seem fair, most UK lenders have invested heavily in reducing processing costs and this manual intervention will inevitably increase overheads. Given that the directive states that the delivery of the explanation must be at no direct cost to the borrower, the cost will have to be borne elsewhere, potentially penalising all borrowers via an increase in rates.

“The UK has robust regulations compared to most of the EU, therefore the Directive may not have as much of an impact here as in other countries in Europe. For example, proposed changes to ensure that the wording of advertising does not create false expectations are already covered by UK law. More onerous requirements run the risk of making consumer adverts more, rather than less, confusing.

“Lenders and intermediaries will be required to make information on the range of products available at all times, replacing the UK’s KFI with an EU wide ESIS. The KFI is already very lengthy, and if the ESIS demands even more detailed information it is doubtful that it will make things clearer for borrowers.

“Though the ability for consumers to compare products is essential, extra legislation may depress product innovation, to the detriment of the market and the consumer.

“Good financial advice already delivers this objective. Though we don’t yet have the detail, as it stands I can see very little in here that is likely to improve the market, or be of benefit to consumers.

“As often happens with “after the event” legislation, it appears to be attempting to treat symptoms rather than root causes.”


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