91997E2758

WRITTEN QUESTION E-2758/97 by Gerhard Schmid (PSE) to the Commission (1 September 1997)

Subject: Property finance in the EU

In spite of the internal market it is still very difficult in the European Union to obtain finance from banks based in one's home country to purchase property abroad. Thus if a German wants to buy a house in Italy he must also set up the finance in Italy, because German banks do not accept Italian property as security.

1. Would the Commission not agree that it is high time a uniform internal market was also created to cover finance for the purchase of property?

2. Are efforts already being made by the Commission to regulate this aspect by law? If not, why not?

Answer given by Mr Monti on behalf of the Commission (8 October 1997)

The existing Community legal framework permits Community credit institutions to provide mortgages on property in other Member States ((Directive 90/88/EEC, 22.2.1990 (OJ L 61, 10.3.1990). )).

It is quite true that some credit institutions are reluctant to agree to finance purchases of property in Member States other than their own. However, according to the information at the Commission's disposal, a number of specialist institutions allocated between 30% and 40% of their loans abroad in 1996.

The main reasons generally given by the more reluctant lenders are as follows:

- the mortgage market is still regarded as a geographically limited market calling for a detailed knowledge on the part of the lender of the property market and property laws, as well as of local practice as regards the valuation of property;

- differences in national tax legislation create a number of problems for lenders. Some Member States, for example, charge withholding tax on the net interest paid to foreign lenders, thereby reducing margins. Others do not allow insurance premiums paid in respect of a mortgage loan from an insurance company not established in the country to be offset against tax. The Commission is currently examining the compatibility with Community law of some of these tax provisions;

- in the event of any default in payment, the lender is at the mercy of enforcement deadlines and procedures in the other country.

These problems are particularly difficult to resolve. Taxation, for example, is a delicate area in which it has so far proved particularly difficult to legislate. Moreover, resolving these problems through harmonisation would require the Community to legislate in the field of civil property law, and this could pose a number of problems, particularly in relation to the principle of subsidiarity.

However, the Commission believes that the introduction of the single currency will have a beneficial effect on cross-frontier property transactions since the exchange risk will disappear and consumers will find it easier to compare mortgage rates. To increase this comparability, the Commission is currently looking into the possibility of extending the provisions on the annual percentage rate of charge (APR) in Directive 90/88/EEC concerning consumer credit ((Directive 89/646/EEC, 15.12.1989 (OJ L 386, 30.12.1989). )) to the field of mortgage credit.