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Europe votes to ban tied mortgages

Tied mortgage products, such as Lloyds Banking Group’s Lend a Hand deal, are set to be banned under the current proposals in the European mortgage directive.

Last week, ECON ­ the European Monetary and Economic Affairs committee ­ voted through a number of draft proposals on the directive.

One of these stipulates that lenders will not be allowed to sell mortgage deals linked to savings accounts where the account is not used solely for the purpose of repaying the mortgage.

This would mean deals such as Lloyds group’s Lend a Hand, where only a 5% deposit is needed and an­other 20% in savings as security for the mortgage, would not be allowed.

British MEP Vicky Ford, shadow rapporteur on ECON, was involved in the voting.

She says: “The amendments I wanted regarding the language on tied products did not get through.

“The proposal states that borrowers can use a savings account but only where the sole purpose of it is to repay the principal interest on the mortgage ­ clearly that is not how savings-linked accounts work.”

Ford is now campaigning to get the proposals amended.

There were also questions last week about whether a proposal in the directive would mean lenders would have to calculate their SVR based on the Bank of England base rate or some other form of reference rate.

The proposals state that where the credit agreement is a variable rate loan, member states must ensure any index or reference rate used to calculate the borrowing rate is clear, accessible, objective and verifiable by the parties to the credit agreement and the authorities.

But Ford says: “We got the wording changed from ‘the index’ to ‘any index’. It was as tiny as that and we worked on it with the Financial Services Authority.”

She says that because of the word change, the proposal now only relates to those lenders that already link their SVR to the base rate.

Also under the proposals voted through last week, buy-to-let will be exempt from the regulations and the Key Facts Illustration will not be scrapped for five years from the time the proposals are introduced.

After this time the KFI will be replaced by a European Standardised Information Sheet.

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, but it is still not clear whether member states will be given the power to decide whether they want to introduce it.

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  • Phil 11th June 2012 at 10:48 am

    Read this paragraph again tig

    One of these stipulates that lenders will not be allowed to sell mortgage deals linked to savings accounts where the account is not used solely for the purpose of repaying the mortgage.

  • Tig Wilson 11th June 2012 at 9:50 am

    So does this mean offset mortgages will also fall under the proposals? It could do, if the wording is so painfully critical and no-one thinks about these mortgages.
    A 14 day cooling off period is really going to annoy buyers in a hurry, or those with solicitors who have left it late to sign documents or request drawdown.
    There are so many levels where this could all go wrong for the customer that the EuroCrats think they are protecting.
    This cannot be why we joined Europe can it?

  • Liz 11th June 2012 at 9:20 am

    Does this mean offset is no more? If so that is a shame.