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Lenders Cautious About Prospects for Residential Mortgage Markets

CRIF, a global company specializing in the development and management of credit reporting, business information and decision support systems, and Efma, the retail financial services community, today published a new study that includes the results of a survey providing insight into the European consumer credit market and estimated impacts of the adoption of the European Commission’s proposal for a directive on credit agreements relating to residential property.

Bologna, Italy, June 17, 2012 --( 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 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 affect mortgage supply.

Consequently, 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 (although only 22% of specialized financial institutions/credit intermediaries expect a reduction, compared to 47% for full service banks – see below figure).

In terms of how the mortgage market could evolve following the adoption of the directive, should the currently proposed text – which introduces measures for an efficient and competitive single market, and promotes financial stability – be confirmed, 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 (46%), improvement in consumer awareness of their borrowing level and ability to compare different credit offers, and improvement in consumer confidence in creditors (50%).

In terms of property valuation, the proposed directive does not include any significant changes to the current regulations, nonetheless the survey asked participants how they would evaluate provisions if they were introduced in some form of legislation: 48% of respondents felt that significant benefits would be achieved by a provision that member states should ensure that lenders use appraisers who can demonstrate skills and qualifications that comply with national and international valuation standards, therefore clearly shifting the obligations and responsibilities onto the network of appraisers.

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.

The recent crisis has also prompted lenders to redevelop internal rating systems to improve model efficiency and performance within this new economic scenario, according to 41% of respondents, highlighting further the attention being paid by operators to assessing the compliance of internal ratings with both the legislative requirements and the changing economic context. Furthermore, an additional 28% of those interviewed stated that their organizations have planned this redevelopment over the next 12 months.

“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,” said Simone Capecchi, Director of Finance, Corporate Offer for Italy and Western Europe at CRIF.

“This study provides a very revealing insight into current attitudes and activity in the retail financial services sector,” says Patrick Desmarès, Secretary General of Efma. “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.”
Contact Information
Federica Vincenzi (Press Office)

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