Dan Neville (Limerick West, Fine Gael)

I welcome the opportunity to discuss the White Paper on the integration of EU mortgage credit markets. I also commend the Oireachtas Joint Committee on European Affairs for its work, in particular its Chairman, Deputy Bernard Durkan, for the work he is doing.

The White Paper we are discussing summarises the conclusions of a comprehensive review of the functioning and the level of integration of the European Union mortgage credit markets. It presents a package of measures to improve the efficiency and the competitiveness of European Union residential mortgage markets. The Commission believes EU action is warranted in this area as the Treaty on the European Union, provides the basis for the creation of a single market. Evidence shows that the single market for residential mortgages is far from integrated. Obstacles exist that restrict the level of cross-border activity on the supply and demand sides, thus reducing competition and choice in the market. The Commission recognises that consumers predominantly shop locally for mortgage credit and that the majority would probably continue to do so, at least for the foreseeable future.

The integration of EU mortgage markets will therefore be essentially supply driven, in particular through forms of establishment in the member states of the consumer. The Commission has duly taken account of the lessons that can already be drawn from the recent events in financial markets. However, the White Paper under discussion is not a response, as such, to the financial turmoil that originated with problems in the United States sub-prime market.

The objectives of the White Paper are to facilitate the cross-border supply and funding of mortgage credit, to increase product diversity, to improve customer confidence and to facilitate customer mobility. The Commission aims to achieve these objectives through a number of different ways, including the encouragement of early payment, improving the quality and comparability of information and promoting responsible lending and borrowing.

With regard to the latter, an expert group on financial histories is to be established to examine ways to improve the accessibility, comparability and completeness of credit data. The White Paper does not announce any legislative measures. However, the Commission does not rule out proposing further legislative measures, such as extending the consumer credit directive to include mortgage credit and banning the use of tying practices. These oblige the consumer to open a current account with the mortgage provider. Until rigorous impact assessment, including a quantitative cost benefit analysis, has been undertaken, and further consultation with all stakeholders has been concluded, the Commission considers it would be premature to decide on whether a legislative approach would, at this stage, deliver the necessary added value. That said, non-legislative measures have been announced, in particular in the field of land registration, property valuation, and forced sales-foreclosure procedures.

What is Ireland's position? The Department of Finance has indicated that until the extent of legislative proposals required in this area is known, it will not be possible to accurately assess the implications for Ireland of the White Paper. Much will depend on whether the Commission is able to move forward the objectives of the White Paper without extensive recourse to EU legislative initiatives. The programme for Government states that moves towards a single European mortgage market should be a particular priority in the retail financial services area. Ireland's mortgage market is already well developed and many of the initiatives discussed in the White Paper, for example, regulation of non-deposit taking lenders and a ban on linking of services, are in place.

What further action is proposed? The White Paper is considered by the Commission to be a major initiative and has resulted from its detailed review of the Single Market. While the implications of the initiatives announced and discussed in the White Paper are difficult to assess at this stage, if legislative proposals emerge following continuing consultations with the stakeholders, it could have a significant impact for mortgage providers and consumers in Ireland. For this reason, it was recommended that the Joint Committee on European Affairs consider this White Paper further, with a view to offering its views to the Commission and Minister. To assist this consideration it was proposed that the joint committee invite a representative of the European Commission to brief it in detail on the content of the White Paper and answer any specific questions members have. It was also proposed that the joint committee write to key stakeholders inviting them to submit their assessment of the White Paper.

The following organisations were invited to submit their views — the Financial Regulator, the regulator of credit providers which is tasked with ensuring sufficient protection is afforded to consumers; Financial Services Ireland and the Irish Bankers Federation, the main representative bodies for financial service providers in Ireland; the Consumers Association of Ireland, the independent watchdog for the protection of consumer rights; and the Department of Finance.

As to the objectives of the White Paper, competitive and efficient EU mortgage credit markets can be achieved by measures which facilitate the cross-border supply and funding of mortgage credit, increase the diversity of products, improve consumer confidence and promote customer mobility. Financial services providers can supply mortgages across borders in several ways — through local presence, for example, branches, subsidiaries, mergers and acquisitions; through direct distribution channels, for example, via telephone or the Internet; or through local intermediaries, for example, brokers. Financial services providers can also engage in cross-border activity by purchasing a mortgage portfolio from a mortgage lender in another member state.

The existence of differing legal and consumer protection frameworks and fragmented infrastructures such as credit registers as well as the lack of appropriate legal frameworks in some instances, for example, for mortgage funding, create legal and economic barriers which restrict cross-border lending and prevent the development of cost-efficient, pan-European Union funding strategies. The Commission, therefore, seeks to remove disproportionate obstacles, thus reducing the costs of selling mortgage products across the European Union.

The Commission believes the different mortgage funding instruments are complementary rather than substitutable. The aim should be to facilitate rather than restrict the development of a wide range of mortgage funding instruments. The use of funding techniques which transfer the risk of mortgage loans from the originating mortgage lenders to the capital markets provides benefits in terms of risk diversification and funding costs. However, recent experiences have highlighted the need to ensure such techniques are used in a way that is not detrimental to financial stability.

Although a wide range of products is available across the European Union, no single domestic market can be considered as having a complete range of mortgage products in terms of either product characteristics or borrowers served. This is due, to some extent, to factors such as consumer preferences or different business strategies adopted by mortgage lenders. However, economic and legal barriers also exist which prevent mortgage lenders from offering certain products in certain markets or opting for a given funding strategy. In this respect, barriers to product diversity are closely related to other barriers inhibiting cross-border activity by mortgage lenders.

An increase in product diversity has been identified by a number of studies as the crucial element for achieving most of the benefits of mortgage market integration. One study estimates that removing the barriers to product availability alone would increase EU consumption by 0.4% and GDP by 0.6% over the next ten years, compared to an estimated overall increase in EU consumption by 0.5% and in GDP by 0.7%. Another study suggests that improved product diversity would lead to a 10% expansion in the market size by enabling new borrowers to access mortgage credit and a quarter of existing borrowers to find more suitable products, bringing annual benefits of between 0.15% and 0.3% of residential mortgage balances.

The Commission seeks to increase the diversity of products that could meet consumers' needs by removing barriers to the distribution and sale of products, particularly new and innovative mortgage products. The Commission recognises that many of the rules which restrict the offering of certain products on a cross-border basis have been designed to protect consumers and-or preserve financial stability. The problems which occurred recently on the US sub-prime market serve as useful reminders of the importance of not taking undue risks with these crucial public policy objectives. The Commission wishes, nevertheless, to explore ways through which greater product diversity can be combined with strong consumer protection and adequate financial stability.

Taking out a mortgage credit is an important decision for any consumer. The Commission believes there can be no efficient market without confident and empowered consumers, who are able to seek out and choose the best mortgage product for their needs, regardless of the location of the mortgage lender. To make an appropriate choice consumers require clear, correct, complete and comparable information on different mortgage products.

The Commission considers it essential that mortgage lenders lend responsibly, in particular by thoroughly assessing the borrowers' ability to pay instalments in the context of the transaction envisaged. They can do such an assessment in a variety of ways, for example, by consulting a database. Irresponsible lending and misselling of mortgage loans by mortgage lenders or unscrupulous credit intermediaries can, as illustrated by the current sub-prime turmoil, have a negative impact on the economy at large.

Good advice, including legal advice, is an important element in enhancing consumer confidence. It is distinct from information, which is merely a description of the product. The Commission wishes to promote high level mortgage advice standards, while recognising that not all consumers need the same level of advice.

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