Select Committee on Treasury Written Evidence

Memorandum submitted by the Council of Mortgage Lenders


  1.  The Council of Mortgage Lenders (CML) welcomes the opportunity to make a submission and give oral evidence to the Treasury Committee inquiry into European financial services regulation.

  2.  The CML is the representative trade body for the UK residential mortgage lending industry, and a member of the European Mortgage Federation (EMF). Our 147 members represent over 98% of the assets of the UK mortgage market. We maintain active links with key stakeholders in the Commission and other European mortgage markets to seek to ensure that European regulatory initiatives do not pose a potential threat to the competitive and highly developed UK mortgage market.

  3.  In parallel, we have been supportive of the Commission's policy to promote integration measures to create a single market, which may open up new business oppportunities in other member states for the few CML members which operate internationally.


  4.  Over a number of years, through the EMF, the CML has been closely involved in debates with the Commission and consumer bodies in Europe on improving comparability and transparency of mortgage product information for consumers. The CML has been supportive of the voluntary code of conduct on pre-contractual information on home loans produced in 2001.

  5.  We supported the Commission's decision to set up a Forum Group on Mortgage Credit in March 2003 with the task of considering the barriers to further mortgage market integration and making proposals to tackle those barriers. Its report The Integration of the EU Mortgage Credit Markets was published by the Commission in December 2004. It contained 48 recommendations for action which were then encapsulated in the Commission's Green Paper Mortgage Credit in the EU published in July 2005. A copy of the CML's response to the Green Paper is attached as annex 1 to this submission.


  6.  While this submission focuses on mortgage credit, the CML would like to touch briefly on one other aspect of the White Paper Financial Services Policy 2005-10 published on 5 December. The CML was particularly pleased to see a continuing strong commitment to a Better Regulation agenda in which an analysis of costs and benefits and impact studies are integral to the development of new regulatory proposals. This personal commitment was reaffirmed by Commissioner McCreevy in his speech at the Hearing on the Green Paper on Mortgage Credit on 7 December. Previously he has articulated his views as follows:

    "Every new piece of legislation that crosses my desk has to show that it provides a clear benefit to the European economy. I ask simple questions: `Is there a case for action? Is it the EU that is best placed to act? Is a regulatory proposal the only possible solution, or are there less intrusive, less costly alternatives that can achieve the same objectives?' Only if I get a `yes' to all these questions will new proposals get my stamp of approval."

  7.  This must be the right approach in our view.


  8.  The Green Paper is the Commission's considered response to the report of the Forum Group on Mortgage Credit. It is consultative in tone but sets out a wide range of possible measures from enhanced consumer protection rules to proposals to improve the efficiency of the secondary mortgage markets. The Commission also asked the consultancy London Economics (LE) to produce an analysis of the European mortgage markets and the potential costs and benefits that might flow from integration. The CML published an article on the LE report which is attached as annex 2 to this submission.

  9.  The Commission held a public hearing on the Green Paper on 7 December. A White Paper on mortgage credit is expected in 2006. Somewhat confusingly, the Commission's Financial Services Policy White Paper on Monday referred to publication at the end of 2006 but Mr McCreevy on Wednesday referred to publication by the middle of the year.

  10.  The Commission has announced an intention to create an expert market participants group to advise on the promotion of a pan-European mortgage funding market. It is disappointing that this initiative has not been progressed since July as we consider it is a positive step for the Commision to take. It is also unfortunate that, we understand, the Commission proposes to publish its White Paper on mortgage credit before the funding group has completed its work. This slow progress seems to understate the importance of improving funding market efficiency to deliver tangible lender and consumer benefits from integration.


  11.  In order to assess the costs and benefits of integration, it is important to be clear about the definition of integration that it is appropriate to employ. The CML supports the definition offered by the LE report referred to above: "The same range of products is available in all member states at the same prices."

  12.  The focus should be on market efficiency and the product range in different member states. The CML believes that there is real scope to promote further integration with measures to address deficiencies in these areas. The CML does not believe that integration can usefully be fostered by the promotion of cross-border borrowing by consumers. The cultural, legal and structural impediments to such activity are too great.

  13.  The 2004 Eurobarometer study estimated that consumers shopping across borders accounted for less than 1% of all lending in the EU. LE concludes that there is little appetite from either consumers or lenders to extend such activity. Cross border activity can expand, but evidence suggests that this will be by way of lenders crossing borders by establishing a presence in other national markets through mergers, acquisitions, establishment of branches and joint ventures.


  14.  In responding to the Green Paper and the LE report, the CML established a clear ranking of priorities for Commission action set out in paragraph 3 of annex 1.


  15.  Overall, the CML believes that a case can be made for Commission action to promote integration but this should not be by regulatory measures. Such a case would be based on a clear set of priorities looking at funding, removing national barriers in other member states, and improving market infrastructures to improve efficiency and enhance competition. At the end of the day, it is lenders themselves who will promote integration through their determination to gain access to new national markets. There will only be lender determination to act when a clear commercial case can be made.


  16.  As the LE report recognises, the UK has a highly developed and competitive mortgage market, with a wider range of products available than any other market in the EU. LE uses the UK market as an exemplar for the key characteristics of an integrated EU market. Ironically, as LE recognises, the highly developed nature of the UK market means that the UK would derive less benefit from moves to promote integration than other member states.

  17.  We cannot allow the UK mortgage market—the EU's largest—to be damaged by measures intended to bring benefits to the EU as a whole.

  18.  It should not be forgotten, also, that the UK market is itself responding to major challenges, principally in the field of regulation and new home buying and selling rules due in 2007. Regulation of mortgages came into force in October 2004. This has resulted in major changes that the mortgage industry is still absorbing. The costs of new statutory regulation, ultimately payable by consumers, have been substantial. The UK now has one of the most developed consumer protection regimes in the EU, and UK lenders have little appetite for further regulatory upheavals that are unlikely to bring benefits to themselves or their customers.

9 December 2005

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