German financial services industry: Integration of the EU’s mortgage markets should be driven by competition

17 October 2005 – Germany’s financial services industry calls for more closely integrated mortgage credit markets in Europe. In a joint paper submitted to the European Commission, the Zentraler Kreditausschuss (ZKA), the German Insurance Association and the German Association of Building Societies nevertheless stress that greater integration must be driven by competition, not by legally prescribed product standardisation.

“Enforced standardisation will not result in more consumer rights, but only make it more difficult to tailor mortgage loans in Europe to the needs of the individual customer.” The industry argues that there would no longer be any question of product diversity in Europe; on the contrary, customers would be severely limited in their freedom of choice. The greatest benefits of a fully integrated European mortgage market – and this is also the conclusion of a report produced for the Commission by the British consultancy London Economics – will be delivered by the widest possible product diversity and product availability.

The German banking associations represented on the ZKA, Germany’s insurance companies and the German building societies also reject the idea of making mandatory the successful voluntary Code of Conduct on Pre-Contractual Information for Home Loans. “The Code is the only way to respond flexibly to national circumstances and reflect the diverse nature of financial traditions in Europe.” They therefore take the view that it is essential for the Code of Conduct to retain its voluntary character.

The financial services industry believes that the major driver of further integration of the mortgage market can, and should, be competition alone. The key is to create an efficient and liquid European secondary market for mortgage credit. The process would also be assisted by a legal framework for efficient portfolio trading, easier transfer of security interests in real estate and the introduction of a pan-European mortgage.