Money News

New EU law could trigger rise in house repossessions

Wednesday 25 January, 2012

By Martin Fagan

Brits in mortgage arrears could face eviction procedures after three months rather than six.

An obscure clause in a new financial directive being pushed through the European Parliament could see millions of Brits lose their homes.

A clause in the draft European Mortgage Directive proposes that all home loans in the EU that are 90 days in arrears must be declared in default and an order for repossession issued. In the UK, current rules allow borrowers up to 180 days before repossession procedures begin.

The vast majority of the 27 EU member states already class homeowners as “in default” when they fall 90 days (or three months) behind on repayments. The UK is unique in that lenders give homeowners who have fallen behind with their mortgage repayments 180 days - six months - to sort themselves out before issuing a repossession order.

The new financial directive is being brought in by the EU to make banks safer and reduce the risk of another financial crisis. The reform of the default period is hidden in an obscure clause within a bank capital directive.

The British Bankers' Association called the 90-day cut off in the draft directive one of its "top concerns". A spokesman said:"We believe that the reduction in the maximum number of days at which default occurs is not reflective of the underlying risk fundamentals."

Another fear if the directive becomes law is the shortened default period would trigger a spike in repossessions and lenders could find themselves taking possession of properties worth less than the mortgage owed on them. The increased financial pressure could see lenders shifting the cost onto other borrowers with higher fees or interest rates and further tighten their lending criteria.

Michael Atkinson, director of the mortgage brokers Summit Capital Mortgages, said: "Were this European directive to become law, at a stroke, it would pull the rug from under many thousands of Britons who are currently struggling to keep up with their mortgage repayments.

"While this would be disastrous for any borrowers who are plunged into default as a result, it would also pile extra pressure - and cost - onto lenders.

"The threat of eurozone collapse is already eroding both British borrowers' confidence and lenders' access to funds on the wholesale money markets. For the EU to weigh in with such a wrongheaded, one-size-fits-all proposal would just rub salt into the wound."

Photo by nikcname