The impact of the mortgage credit directive in Europe

Preface v
Contents vii
Abbreviations xx

Part I: Introduction

chapter 1 Crisis? What Crisis? Common EU Rules for Mortgage Credits
Esther Arroyo Amayuelas
I Introduction 2
II The Financial and Housing Crisis 4
III Common EU Rules for the Mortgage Credit 7
1 The Scope of the MCD and Opt-Out Options 8
2 Responsible Lending 10
2.1 Transparency: Information and Explanation Duties and Advice Services 10
2.2 Tying and Bundling Practices 12
2.3 Cooling-off Period / Right of Withdrawal 13
2.4 Creditworthiness Assessment 14
5 Early Repayment 16
6 Foreign Currency Loans 16
7 Valuation Systems 17
8 Mortgage Enforcement Proceedings and Arrears 18
IV Final Remarks 19

chapter 2 What is Mortgage Credit?
Peter Sparkes
I Introduction 24
II ‘Credit’: the Challenge of Islamic Finance 26
III Lenders 27
IV Consumer Loans 27
V Homes as ‘Residential Immovables’ 31
VI Security 32
1 ‘Collateral’ 34
2 ‘Mortgage’ 35
3 Mortgage Equivalents 36
VII Home-Acquisition Loans 37
1 Purpose-Based Inclusion in Mortgage Credit, Exclusion from Consumer Credit 37
2 What Drives the Statement of the Scope of Mortgage Credit? 38
3 Problems in the Mortgage Market the impact of the mortgage credit directive in europe 40
4 Standardised Information 40
VIII Other Purposes: Bolt-Ons and Exclusions 43
1 Bridging Finance 43
2 Acquisition of Buy-to-Let Property 44
3 Acquisition of Non-residential Immovables 45
4 Renovation of Homes 46
5 Equity Release 46
IX Conclusion 47

chapter 3 The Spanish Crisis and the Mortgage Credit Directive:
Few Changes in Sight
Miriam Anderson & Héctor Simón Moreno
I Introduction 50
II The Spanish Property and Mortgage Markets: A Recipe for a Crash 50
1 The Property Bubble and What Happened When it Burst 50
2 An Ill Wind that Blows Some Good: Purging Unfair Terms in Consumer Mortgage Loans 56
2.1 Default Interest Rates 57
2.2 Acceleration Clauses 57
2.3 Interest Rate Floors 59
2.4 Ancillary Expenses 60
2.5 Deposits or Other Advanced Payments Made When Consumers Acquire Immovable Property May Render Transparency Provisions Ineffective 61
3 What About ‘Unfair Products’? 63
3.1 Interest Rate Swaps and Other Interest Rate Limitation Products 63
3.2 Foreign Currency Loans 63
3.3 Reverse Mortgages 64
3.4 Buy-to-Let Schemes 65
3.5 Bridging Loans 65
4 Unfair Commercial Practices, Irresponsible Lending and Non-Regulated Intermediaries 66
5 The Role of Notaries or Other Professionals in Conveyancing and Mortgaging. Property Appraisal Companies 67
6 A New Form of Torture: Assignment of Secured Credits to Investment Funds 70
III The Expected Impact of the MCD in Spain 71
1 Transposition Running Late 71
2 The Scope of the Foreseeable Transposition 73
3 Staff Remuneration and Skills. Advisory Services 74
4 Pre-contractual Information 77
5 Tying and Bundling Practices 81
6 The APRC and Art. 17 MCD 82
7 Creditworthiness Assessment and Property Appraisal 83
8 Foreign Currency Mortgages 89
9 Variable Interest Rate Indices Fixed Among a Reduced Number of Creditors 89
10 Early Repayment 91
11 Default Charges 91
12 The Creditor’s Right to Enforce: Is It Limited? 92
13 Tracking the Property Market 94
IV A Few Relevant Issues for Spain that the MCD Does not Solve 95
1 Reasonable Forbearance Prior to Enforcement 95
2 Deficiency Judgments and ‘Facilitated Repayment’ 99
3 Absence of European Law Remedies 101
4 Securitisation, Modification of Existing Mortgage Loans, Unfair Terms and Risk Warnings 101
5 The Harmonization of the Mortgage Market: Abandoned for Good? 102
V Final Remarks 103

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 114
1 Belgium 114
1.1 Relevance of Consumer Credit for Immovables: ‘A Brick in the Stomach’ 114
1.2 Belgian Legislation Prior to 2014 115
1.3 Scope of the MCA 116
1.4 Highlights and Objectives of the MCA 117
1.4.1 Introduction 117
1.4.2 Credit Market Enhancement: Variable Interest, Transfer of Secured Claims and Securitization 118
1.4.3 Consumer Protection in the MCA: Control and Information Requirements 123
1.4.4 Conclusion 126
2 France 126
2.1 French Legislation Prior to 2014 126
2.2 Focal Points of the French CLC with Regard to Mortgage Credit 127
2.2.1 Scope 127
2.2.2 Pre-contractual Obligations 128
x the impact of the mortgage credit directive in europe
2.2.3 Execution of the Credit Agreement 129
2.2.4 Conclusion 129
II The Impact of the MCD 129
1 Implementation Measures in Belgium 129
1.1 Overview 129
1.2 Codification of the MCA 130
1.3 Implementation of the MCD in Belgium 130
2 Implementation Measures in France 131
3 Focal Points of the MCD as Implemented in Belgian and French Law 132
3.1 Scope of Application of the MCD 132
3.1.1 Scope of the New Rules Ratione Personae 132
3.1.2 Scope of the New Rules Ratione Materiae 134
3.1.3 Belgian Consequence: Consumer Credit versus Mortgage Credit 136
3.1.4 French Consequence 136
3.2 The Implementation of Some Focal Provisions of the MCD in Belgian and French Law 136
3.2.1 European Standardized Information Sheet (ESIS) 137
3.2.2 Calculation of the Annual Percentage Rate of Charge (APRC) 138
3.2.3 Marketing and Advertising 138
3.2.4 Pre-contractual Information 141
3.2.5 Reflection Period and Withdrawal Period 144
3.2.6 Creditworthiness Assessment 145
3.2.7 Advisory Duty and Services 148
3.2.8 Tying and Bundling Practices 150
3.2.9 Variable Interest Rate 152
3.2.10 Conclusion of the Credit Agreement 153
3.2.11 The Execution of the Credit Agreement 155
3.2.12 General Conduct of Business 158
III Conclusions: Consumer Protection Reinforced and New Substantial Rules 159

chapter 5 Secured Consumer Credit in England
Sarah Nield
I Introduction 166
II A Brief Overview of Housing Policy 167
III An Overview of Consumer Credit Secured on Immoveables 169
1 Home Purchase 169
2 Business Lending Secured on the Home 170
3 Secured Consumer Credit 171
4 Buy-to-Let (BTL) Mortgages 171
5 Equity Release Schemes: Lifetime Mortgages and Home Revision Plans 173

6 Home Purchase Plans 174
IV Consumer Mortgage Regulation in England 174
1 The FCA’s Statutory Objectives 176
2 Licensing 177
3 Standard Setting 178
4 Monitoring, Compliance and Disciplinary Action 180
5 Consumer Redress 182
V The UK’s Response to the Financial Crisis 184
1 Minimising Home Repossessions: Forbearance, Safety Nets & Exit Routes 185
2 Conduct Standards: The Mortgage Market Review 188
2.1 Information Disclosure (MCOB 5, 5A, 6, 6A, 7A, 7B) 189
2.2 Affordability (MCOB 11,11A) 190
2.3 Stress Testing for Added Risks (MCOB 11, 11A) 192
2.4 Interest-Only Mortgages (MCOB 11, 11A) 192
2.5 Advice-Only Sales (MCOB 4, 4A) 192
2.6 Particular Borrowers and Borrowing (MCOB 5, 5A, 6, 6A, 7, 7A, 7B) 193
VI Concluding Remarks: Are the MMR and MCD Enough? 194
1 Mortgages as Financial Products 195
2 Mortgages as the Gateway to Home Ownership 196
3 The Balance of Mortgage Risk 197
VII Appendices 200

chapter 6 The Transformation of the Mortgage Credit Directive in German Law
Dieter Krimphove & Christoph Lüke
I A General Overview of Consumer Credits Secured by Immovables in the German Legal System 206
1 The Importance and Value of Encumbrances on Real Property in Recent German History 206
1.1 German Law of Condominium 206
1.2 Loan Securities: Mortgages, Land Charges and Annuity Land Charges 207
1.3 The German Abstraction Principle 209
1.4 The Principle of Publication of Rights in Rem 211
II The Impact of Directive 2014/17 212
1 The Transposition of the Directive in German Law 212
1.2 The Definition of the Consumer Credit Agreement 214
1.3 Pre-contractual Information in Advertising 215
1.4 Pre-contractual Information and ESIS 216
1.5 The Creditworthiness Assessment 216
1.6 Standards for Advisory Services 217
1.7 Tying and Bundling Practices 218
1.8 Foreign Currency Loans 219
1.9 Competence and Remuneration of the Staff 220
1.10 The Right of Withdrawal and the Period of Reflection 220
1.11 Early Repayment 221
2 Primary Evaluation of the MCD Provisions 222
2.1 The Extension of the MCD Requirements to General Consumer Credit 222
2.2 Parallels to the Regulations on Securities 222
3 The Economic Impact of Directive 2014/17 223
3.1 The Economic Impact of Advertising 223
3.1.1 Reliability of Information 224
3.1.2 Economic Necessity of Information 224
3.1.3 Intermediate Result 226
3.2 The European Standardised Information Sheet (ESIS) 226
3.2.1 The Transaction-cost Reduction for the Consumer 226
3.2.2 The Necessity of Information and Expenses for the Creditor 227
3.2.3 Intermediate Result 227
3.3 The Economic Impact of the Creditworthiness Assessment 228
3.3.1 The Prohibition of Lending in the Case of a Negative Creditworthiness Assessment 228
3.3.2 Contractual Freedom 228
3.3.3 The Technical Creditworthiness Assessment 229
3.3.4 Intermediate Result 229
3.4 The Information Overload 230
III Relevant Issues That Directive 2014/17 Does Not Solve 230
1 The European Law of Property 230
2 The Economic Necessity of Harmonization of National Property Law 230
IV Conclusions 231

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 236
1 Trends in Housing Construction and Its Financing in Greece 236
2 Impact of the Greek Sovereign Debt Crisis 238
3 Protectionist Measures 240
4 The Issue of ‘Red Loans’ and Plans to Deal with Them 241
5 Housing Loans in Swiss Francs 243
6 Backdrop of the Transposition of the MCD 249
II The Impact of the MCD in Greece 250

1 The Transposition Process 250
2 The Transposing Law in Detail and Its Relation to the MCD 253
2.1 General Remarks 253
2.2 Definitions 253
2.3 Competent Authorities 254
2.4 Conduct of Business and Staff Knowledge Requirements 255
2.5 Pre-contractual Information and Practices; APRC 255
2.6 Creditworthiness Assessment, Database Access and Advisory Services 256
2.7 Loans in Foreign Currency 257
2.8 Sound Execution of Credit Agreement 258
2.9 Establishment and Supervision of Credit Intermediaries/Non-Credit Institutions – Cooperation Between Member States 260
2.10 Sanctions/Final Provisions 261
III Problems that the MCD Does not Solve 264
1 Existing Loans in Foreign Currency 264
2 The Treatment of Claims in Arrears 265
IV Conclusions 267

chapter 8 To Learn and to Forget: Lessons from the Irish Mortgage Crisis
Mark Jordan
I Introduction 274
II The Irish Housing System and Mortgage Market 274
1 Mortgage Products in Ireland 276
2 From Boom to Bust: The Irish Mortgage Crisis 280
III Regulation of Mortgage Lending in Ireland and the MCD 284
1 Extension versus Exclusion: The Scope of the MCD 285
2 Lending Practices: Remuneration of Staff Working for Lenders 287
3 Pre-contractual Information (ESIS) 289
4 Tying and Bundling Practices 289
5 Annual Percentage Rate of Charge 290
6 Creditworthiness Assessment 290
7 Property Valuation 291
8 Foreign Currency Loans 292
9 Variable Interest Rates 293
10 Early Repayment 294
11 The Right to Enforce the Security 295
12 Charges upon Default 296
IV Assessing the MCD in Irish Mortgage Law 297
V Conclusion 299


chapter 9 The Impact of Directive 2014/17/EU in Italy
Elena Bargelli & Giulia Donadio
I General Overview 304
1 Credits for Consumers Secured by Residential Immovable Property in the Italian Legal System Prior to the Implementation of the MCD 304
2 Recent Trends in the Housing Market and an Increase in Mortgage Enforcement over Immovables Secured for Consumer Credits 307
3 The Role of Professionals (Bank Practices and Notaries) 309
4 The True Culprit: The Economic Crisis 311
II The Impact of Directive 2014/17 312
1 General Overview of the DLeg 72/2016 Implementing the MCD 312
2 Remuneration of Staff Working for Credit Institutions, Intermediaries or Representatives Prior to the Implementation of the Directive 313
3 Pre-contractual Duties and Information 314
3.1 Advice and Advisory Services 314
3.2 Advertising and Pre-contractual Information 314
3.3 Tying and Bundling Practices 317
3.4 Annual Percentage Rate of Charge 317
3.5 The Creditworthiness Assessment 317
III Special Issues on Consumer Protection 319
1 Foreign Currency Loans 319
2 Variable Interest Rates: The ‘Objective Index’ and the Duties of Information on Any Variation in Contractual Terms 319
3 Early Repayment 319
4 Non-Performance 320
4.1 The Right to Enforce and the Usefulness of a Specific Price Index 320
4.2 Reasonable Forbearance Before Foreclosure 320
4.3 Transfer of Property in Lieu of Payment Prior to the MCD 323
4.4 Default Charges 324
IV Important Issues that the MCD Does not Solve 325
1 Important Issues That Fall Outside the Scope of the MCD 325
2 Relevant Issues Falling Within the Scope of the Directive 327
V Conclusions 328


chapter 10 The Impact of Directive 2014/17 in Malta
Kurt Xerri
I Introduction 334
II General Overview of Consumer Credits Secured by Immovables 334
1 The Preference for Ownership 334
2 Securities over Immovable Property under the Maltese Civil Code 339
3 Foreign Investment in Immovable Property 340
4 Effect of the Financial Crisis 341
III The Impact of Directive 2014/17 in Malta 344
1 The Transposition of Directive 2014/17 344
2 Impact of the Directive 344
2.1 Existing Regulatory Measures at the Time of the Implementation 344
2.2 Judicial Challenges to Credit Agreements 347
2.3 The Parliamentary Debates 348
2.4 The Response by the Malta Bankers’ Association (MBA) 349
3 Transposition of the Mortgage Credit Directive into Maltese Law 350
4 Issues Overlooked during the Transposition 351
4.1 The Creation of Social Banks and Lending Through Socially-Oriented Schemes 351
4.2 Foreign Currency Loans 352
4.3 Remedies Available to the Aggrieved Consumer 353
5 The Regulatory Bodies 354
IV Final Comments 355

chapter 11 Quia Domus Tutissimum Cuique Refugium Atque Receptaculum Sit. The Mortgage Directive in Dutch Law
J. Michael Milo
I Introduction 360
II An Overview: Acquiring Houses on Credit in the Netherlands 360
1 Facts and Factors 360
2 The Dutch Civilian Framework 365
3 Selling and Transferring Residential Property 366
4 Financing Residential Property: The Obligational Side 368
5 The Mortgage 371
III The MCD Implementation in Dutch Law 372
1 Implementation of the MCD in The Netherlands 372
2 Implementation in the Civil Code 373

2.1 In General 373
2.2 On General Provisions and Scope 374
2.3 On Advertisements 374
2.4 Tying and Bundling Practices 375
2.5 On Information Before the Contract 375
2.6 On Contractual Obligations 376
IV Relevant Issues that the MCD Does not Solve 378
V Conclusions 379

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 1990 Shift to a Market Economy 384
II The Situation of Housing and Housing Preferences 386
III The Mortgage Credit Market at the Onset of the Global Financial Crisis 388
IV The Current Mortgage Credit Situation 391
V Legal Aspects of Mortgage Credit 393
1 The Essence of the Bank Loan Contract 393
2 Consequences of Granting Credit Despite the Lack of Creditworthiness 395
3 The Problem of the Overprotection of the Creditor 399
VI Problematic Lending Practices and Bad Credits 400
1 LTV Ratios and Unfair Contract Terms 400
2 Problems with Foreign Currency Loans 402
3 Continuing Disputes Concerning the Validity of Foreign
Currency Mortgage Credit Contracts 406
VII Difficulties in Implementing the MCD 409
VIII Conclusions 418

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 424
II The Expected Impact of the MCD in Portugal 430
1 Information and Advertising Duties 430
2 Tying and Bundling Practices 433
3 Early Repayment 434
4 Staff and Credit Intermediaries 434
5 Creditworthiness Assessment, Property Evaluation and Default 435

III Relevant Issues that Require Further Thought 437
IV Conclusions 441

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 446
II On the Factual and Normative Fabric in Our Jurisdictions 446
1 The Factual and the Normative 446
2 Facts: Diverse Markets for Financing and Housing 447
3 Norms: Fairly Uniform Framework v. Diverse Sources and Substance 448
III On the Credit Agreement: Obligations and Non-Performance 450
IV On the Mortgage and its Powers 453
V Conclusions 455

Index 458