The revised directive allows the UK to exempt buy-to-let mortgages from the directive and allows for the current KFI document to remain for five years after the directive has been implemented.
After five years the UK will have to adopt an ESIS which delivers the essential characteristics of a credit product in a personalised manner to the consumer so that the consumer can understand the effects which the product may have on their economic situation.
Legislation requirements of the CARRP directive will be adapted to reflect differences among EU member states’ national mortgage and property market and information for buyers will have to be presented in a consistent format across the EU.
Antolin Sanchez Presedo, rapporteur, said: “Parliament has given a qualitative breakthrough regarding the initial text. We now have more ambitious legislation which establishes the international golden standards bringing in the principles recently adopted by the Financial Stability Board.
“We introduced a new chapter on financial education, strengthened information to consumers, established a reflection period and the possibility to receive good advice as well as fair principles for crisis situations.”
Where a borrower defaults on a loan, European Parliament Members will want arrangements to ensure that the lender makes every reasonable effort to solve the problem before initiating foreclosure proceedings.
They also aim to ensure that arrangements for settling the debt outstanding after the property has been sold are reasonable with regard to the borrower's circumstances, e.g. family situation.
These arrangements could include limiting the seizure of wages, retirement pensions, etc, so as to ensure that the borrower retains a minimum household income.
Borrowers will also have a 14 day cooling off and reflection period after signing a mortgage deal during which they could withdraw from it.
MEPs have also inserted flexibility provisions including a right for borrowers to repay loans early and a right for lenders to receive a fair compensation for such early repayment. However obliging borrowers to pay penalties for early repayment will be prohibited.
MEPs have also decided that where expressly agreed by both parties of the mortgage deal, borrowers should be able to port a mortgage from one residential property to another when moving house.
To make this possible, member states will have to develop means to ascertain whether the borrower has a clear legal title to the property.
For the first time, MEPs are also seeking to regulate “tying practices”. The amended legislation will prohibit lenders from making loan offers conditional on the purchase of insurance or other financial products from a specified provider, although lenders could nonetheless require borrowers to take out an insurance policy with specific characteristics and refuse the loan if they declined to do so.
It is in the MEPs’ view that banning tied products will make it easier for borrowers to switch providers.
The next step for CAARP will be to have open negotiations with member states to strike a deal.
A statement from the Council of Mortgage Lenders said: “We’re pleased to see that many of the long standing issues we have been lobbying on have reached a positive outcome for the UK in the EU Parliament today.
“So for example, the UK would be able to exempt buy-to-let from the directive and we would be able to keep the KFI for five years after the Directive has been implemented.
“However, some provisions have been included which only emerged at a late stage of negotiations but which may not have had their full implications considered and we will continue to work on these issues as the Directive goes into its next stage of discussions.”
Paul Broadhead, head of mortgage policy at the Building Societies Association, said: "Although this directive still has some way to go to reach its final form, the indications from this morning's vote in the European Parliament are that the UK government may be able to choose to exempt buy to let mortgages which is good news.
"We are disappointed that in the longer term the Key Fact illustration looks like it will be replaced by the European Standardised Information Sheet which gives consumers less information and will cost lenders a substantial sum to implement. However, the indications are that the UK will have five years to implement that change."
