Buying residential immovable property – rules on loans

KEY POINTS

• The directive applies to all loans made to consumers for the purpose of buying a home, including loans that are guaranteed by a mortgage or by another comparable security.
• It provides for better information to consumers on available mortgage products including:
  • an obligation on lenders to provide consumers with a standardised information sheet (the European standardised information sheet), which allows them to shop around to identify the right product for them;
  • the inclusion in the European standardised information sheet of worst-case scenarios regarding variable interest and foreign currency loans, to alert consumers of potential interest rate variations;
  • a guaranteed period of reflection (before the conclusion of the credit agreement) or a right of withdrawal (after the conclusion of the credit agreement) for borrowers;
  • an obligation on lenders to conduct a thorough, documented assessment of borrowers’ creditworthiness, to ensure that they can meet their repayment obligations.
• The directive establishes business conduct principles::
  • these ensure that lenders and credit intermediaries (i.e. persons or companies providing information and assistance to consumers looking for a mortgage loan) act honestly and transparently in the consumers’ interests;
  • lenders and credit intermediaries must ensure that their staff have up-to-date knowledge on loan agreements and that consumers are provided with all the necessary information before signing any agreement.
• Consumers have a general right to repay their loans early, in order to benefit from a reduction in the total remaining cost of the mortgage. In such cases, EU Member States may entitle lenders to fair compensation for any costs directly and exclusively linked to early repayment.
• The directive establishes an EU passport regime for credit intermediaries. This means that, in principle, once authorised in one Member State, a credit intermediary is allowed to provide services throughout the EU.

Directive (EU) 2021/2167 amending Directive 2014/17/EU

• To ensure that the level of consumer protection is not affected if the creditor’s rights under a mortgage credit agreement or the agreement itself are transferred to a third party (credit purchaser), amending Directive (EU) 2021/2167 (which harmonises the rules for credit servicers and credit purchasers with regard to non-performing loans – see summary) adds a new article to Directive 2014/17/EU giving the consumer the rights, in cases of transfer of credit, to plead against the credit purchaser any defence which was available to them against the original creditor and to be informed of the transfer.
• Amending Directive (EU) 2021/2167 also adds an article setting out rules concerning the information that the creditor must communicate to the consumer prior to modifying the terms and conditions of a credit agreement.
• The amending directive also introduces a requirement for creditors to have adequate policies and procedures allowing them to exercise reasonable forbearance before foreclosure proceedings are initiated where appropriate and taking into account consumers’ circumstances. The amending directive sets out a non-exhaustive list of possible forbearance measures.