Efma-CRIF has quizzed lenders about the possible impacts of the European commission’s proposal for a directive on credit agreements relating to residential property.
The firm is a global company specializing in the development and management of credit reporting, business information and decision support systems.
The survey involved questionnaires and direct interviews with managers from major credit-granting institutions, ranging from local to international organizations, and operating in 13 different European countries. 77% of respondents to the survey represented full service banks and 23% represented specialist financial institutions/credit intermediaries.
The survey found expectations for 2012 are not encouraging – only 18% of respondents believe they will see an increase in loan volumes compared with 2011, and 41% expect a decrease – only 22% of specialized financial institutions/credit intermediaries expect a reduction, compared to 47% for full service banks.
In general, the survey data reveals significant fragility in the residential mortgage market, both from a supply and demand perspective, due to the unfavourable economic situation and the substantial erosion of product margins.
In terms of market trends observed in 2011, 51% of those interviewed reported a fall in loan demand and volumes equivalent to that of 2010. The mortgage market situation is seen as particularly difficult, with Basel 3 requirements, shortage of liquidity and the uncertain economic situation increasing fragility.
In particular, for 54% of participants, the liquidity crisis will be one of the key factors having a negative impact on new lending, and 46% of participants said that capital requirements will negatively effect mortgage supply.
In terms of how the mortgage market could evolve following the adoption of the directive, should the currently proposed text be introduced – which introduces measures for a single market – participants perceive that there will certainly be a number of significant impacts.
The majority of respondents – 61%, expect the development of alternative lending channels to be unlikely, as well as changes to the relationship between creditors and insurance companies. While only 50% expect it to lead to an improvement in consumer awareness of their borrowing level and ability to compare different credit offers and improvement in consumer confidence in creditors.
From the point of view of useful information regarding the assessment of creditworthiness, the vast majority of respondents believe that being able to access certain information on the effective spending capacity of the borrower would have a positive effect on the assessment of whether to grant a mortgage.
In particular, this could involve the use of external data that reveals information on borrowing habits, debt management profile, overdrafts and revolving credit utilization, overall borrowing level, propensity for credit shopping, refinancing, and borrowing from more than one bank.
Simone Capecchi, director of finance, corporate offer for Italy and Western Europe at CRIF, says: “The adoption of the proposed directive – the provisions of which are still to be approved – could certainly stimulate uptake of the principles of transparency and sustainability in lending.
“However, what the current text of the proposal does not address efficiently, and can therefore be considered its weakest point, is the role and importance of the lender-borrower relationship in a mortgage product – particularly given its long maturity period.”
Patrick Desmarès, secretary general of Efma, adds: “It is clear that lenders are continuing to be extremely cautious in their approach to the residential mortgage market. They are striving for better quality information to support their lending decisions and examining how they can better judge creditworthiness, not just at the point of a mortgage application but across the client relationship – for all products and its entire term.”