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EBA launches consultation on mortgage credit directive rate formula

The European Banking Authority (EBA) has published a consultation document on a proposed benchmark rate formula, under the Mortgage Credit Directive (MCD).14 Oct 2015

Under the MCD, creditors offering variable rate mortgages have to create a European Standardised Information Sheet (ESIS). This should include a warning that the variable rate could affect the actual level of the annual percentage rate of charge, with an 'illustrative' example of this, plus an illustration of a maximum instalment amount. These illustrations should be calculated on the basis of a rate specified by the EBA.

The EBA has developed a draft formula to calculate this rate, and would like to hear views from consumer and industry stakeholders on the approach it is proposing, it said.

The authority has produced a formula rather than a single rate to make sure that the rate represents "national circumstances", it said. The formula uses an underlying rate that is specific to each member state. For eurozone countries this is the European Central Bank (ECB) 'main refinancing' rate, while non-eurozone countries will use their own central bank refinancing rate. 

The rate should be calculated once a year by creditors, the EBA said, as it would not be "proportionate" to ask creditors to update it daily.

The consultation runs until 20 November.

The EBA published final guidelines on 'passport notifications' for credit intermediaries under the MCD in August, designed to encourage cross-border mortgage markets by making sure that information about credit intermediaries doing business in more than one member state is exchanged consistently between national authorities.

The MCD is due to be transposed into national law across Europe by 21 March 2016.