The powerful European Parliament group, the European Monetary and Economic Affairs committee – ECON – voted through its draft proposals today after months of delays.
The committee had struggled to find agreement and delayed a vote five times since its initial date in December 2011.
Buy-to-let had initially been covered under the regulation alongside all residential properties but the UK government lobbied hard against its inclusion.
The final ECON proposal also included a five-year exemption to introducing the European Standardised Information Sheet to replace the Key Facts Illustration.
But a 14-day cooling off period after customers sign a mortgage deal has been proposed by MEPs to allow customers some time to reflect on the deal after it has been agreed.
The Council of Mortgage Lenders welcomed UK exemptions over the KFI and buy-to-let claiming its lobbying has been successful.
However a CML spokeswoman warns: “Some provisions have been included which only emerged at a late stage of negotiations but which may not have had their full implications considered and we will continue to work on these issues as the Directive goes into its next stage of discussions.”
Paul Broadhead, head of mortgage policy at the Building Societies Association, says the regulation is still not finalised but welcomed the indication buy-to-let would be exempt.
He says: “We are disappointed that in the longer term the KFI looks like it will be replaced by the ESIS which gives consumers less information and will cost lenders a substantial sum to implement. However, the indications are that the UK will have five years to implement that change.”
MEPs voted for greater contract flexibility including a right for the borrower to repay the loan early and a right for the lender to receive a fair compensation for such early repayment.
But forcing borrowers to pay penalties for early repayment would be prohibited.
The report also proposes banning lender from tying mortgages to other products such as insurance, although it is believed current accounts are exempt.
Special rapporteur for ECON Antolin Sanchez Presedo who drafted the report says the legislation establishes international golden standards.
“We introduced a new chapter on financial education, strengthened information to consumers, established a reflection period and the possibility to receive good advice as well as fair principles for crisis situations.”
The vote means MEPs will open negotiations with member states to strike a deal.