Finance Watch urges MCD revision to alleviate housing crisis

Europe’s first dedicated Housing Commissioner is mandated to carry out ‘the European Affordable Housing Plan’. But with relatively limited EU level competences, what can be done to address the housing crisis? Finance Watch’s latest position paper offers concrete proposals, leveraging the EU’s financial regulatory powers to deliver immediate relief for households burdened by escalating mortgage costs.

Von der Leyen has made big promises on housing, making it a priority issue for this Commission. No wonder, housing prices in the EU have risen by an average of 48% in less than 10 years. In 2022, housing costs made up more than one fifth of household expenditure; they have since increased more than 10%, with interest rates putting pressure on mortgages. While the Housing Commissioner can advocate for affordable housing, the EU has no direct competence over housing policy.

In a new position paper, Finance Watch argues that one solution lies in the revision of the Mortgage Credit Directive (MCD), a measure within the EU’s financial services competence. Revising the MCD would address rising mortgage costs and support more equitable access to housing finance across Europe. A revision could also bring immediate relief to households through enhanced consumer protections, fairer credit standards, and increased mortgage choice.

Finance Watch’s recommendations include:

1. Measures should be introduced to prevent excessive costs, with lenders obliged to offer both variable and fixed rate mortgages. Consumers should be able to easily switch between the two. Tying and bundling of ancillary products should be prohibited as they add unnecessary costs.
2. Creditworthiness assessment rules should be strengthened, aligning MCD rules with the more appropriate creditworthiness assessment rules in the revised Consumer Credit Directive (CCD). This would help to prevent mis-selling of mortgages to households that are unable to repay them, and limit financial exclusion based on discrimination. 
3. Stronger forbearance measures are needed, also aligning rules with the revised CCD. Specific forbearance measures should be prescribed and obliged to be exercised by creditors in cases where consumers are facing financial difficulties.

Finance Watch urges policymakers to prioritise a revision of the MCD, to deliver swift, tangible relief for consumers. By enforcing stronger protections around mortgage offerings, credit assessments, and forbearance, the MCD could provide meaningful support to millions of households and reduce the financial pressures of homeownership across Europe.