Changes to Regulation of Mortgage Credit Agreements

The EU (Consumer Mortgage Credit Agreements) Regulations 2016 (the “Regulations”) came into operation on 21 March 2016. The Regulations transpose into domestic law the provisions of Directive 2014/17/EU of the European Parliament and of the Council on credit agreements for consumers relating to residential immovable property and amending Directive 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010 (the “Mortgage Credit Directive”).

The objective of the Mortgage Credit Directive, as outlined in Recital 6, is to develop a more transparent, efficient and competitive internal market, through consistent, flexible and fair credit agreements relating to residential immovable property, while promoting sustainable lending and borrowing and hence providing a high level of consumer protection.

The main provisions include:-

• Consumer information requirements;
• Principle based rules and standards for the performance of services (e.g. conduct of business obligations);
• A consumer creditworthiness assessment obligation;
• Provisions on early repayment, 
• Provisions on foreign currency loans;
• Provisions on tying practices;
• Some high-level principles to encourage lenders to apply reasonable forbearance when confronted by consumers in serious payment difficulties (e.g. those covering financial education of consumers, property valuation arrears and foreclosures), and,
• A passport for credit intermediaries who meet the admission requirements in their home Member State.

In particular, Part 4 of the Regulations provides for certain pre-contractual information and practices in relation to the advertising of credit agreements, the provision of pre-contractual information and measures for the provision of adequate explanations to consumers.  Further, the Regulations provide for the mandatory provision of standardised pre-contractual information to consumers through the use of the European Standardised Information Sheet ("ESIS") and for a ‘reflection period’ to enable a consumer to compare offers of mortgage credit and to make an informed decision.

The Regulations also contain three schedules which:-

(i)   provide for certain ‘minimum knowledge and competence requirements’ for creditors and mortgage credit intermediaries (Schedule 1),

(ii)  the details of the ESIS sheet to be provided to consumers before entering into a relevant credit agreement (Part A of the Schedule 2), and

(ii)  the mathematical formula and additional assumptions to be used to calculate the annual percentage rate of charge (Schedule 3).

Points (ii) and (iii) above (together with the other relevant parts of the Regulations) have a 'maximum harmonisation" effect and will therefore apply in a consistent way across EEA Member States.  Although it is not required to be provided for in the Regulations, it should be noted that Article 44 of the Mortgage Credit Directive provides that the EU Commission shall review the effectiveness and appropriateness of the Directive's provisions on consumers and the internal market by 21 March 2019.

It is clear that the Regulations increase choice by making it easier for consumers to shop around to get a mortgage from banks in other EU countries.  The Regulations will complement existing consumer protection provisions in relation to residential mortgages, and also work alongside the Central Bank of Ireland Consumer Protection Code and the Code of Conduct on Mortgage Arrears.  They apply to all new credit agreements for consumers relating to residential immovable property from 21 March 2016.

For further information and advice, please contact Mark Kavanagh, Robert Desmond, Catherine Finn or a member of our Banking & Finance team.