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MPs concerned over changes to regulations on mortgages

 

Lawmakers on Monday raised a number of concerns over a bill designed to transpose into domestic law EU-wide rules on mortgages and which introduces credit intermediaries.

Among other provisions, the bill sets out rules on what information mortgage advertising must contain, and mandates that non-banking institutions provide consumers a calculation of the annual percentage rate for comparison purposes.

But discussing the item at the House finance committee, some MPs suggested the bill as it stands does not afford consumers adequate protection.

Deputy Anna Theologou, of the Citizens Alliance, said the bill will repeal and replace the Consumer Credit Law of 2001 which in her view featured better safeguards for borrowers.

A major point of concern she highlighted relates to the new bill’s provisions on mortgage life insurance.

Mortgage life insurance is a form of insurance specifically designed to protect a repayment mortgage. If the policyholder were to die while the mortgage life insurance was in force, the policy would pay out a capital sum that will be just sufficient to repay the outstanding mortgage.

But according to Theologou, the government bill contains a clause mandating that a borrower applying for a mortgage must have a life insurance policy that is ‘equivalent’ to the insurance offered by the lender.

A major bank in Cyprus, Theologou pointed out, sells life insurance policies. So if a prospective borrower applying for a home loan has a mortgage life insurance with another company, but that policy is not equivalent to the lender’s insurance policy, then in order to qualify for the loan the borrower would be forced to also purchase insurance from that lender.

This is known as tied selling – the practice of a company providing a product or service on condition the customer purchases a product from the same or related company.

By contrast, Theologou said, the 2001 law affords borrowers the opportunity to assign an insurance policy from a third party.

Finance committee chair Averof Neophytou (Disy) instructed MPs to submit their remarks and queries in writing so that they can be forwarded to the finance ministry – which drafted the bill – and answered by this Friday.

In November 2016, the European Commission sent Cyprus and eight other EU member states a reasoned opinion requesting them to transpose the Mortgage Credit Directive (Directive 2014/17/EU) into national law.

The deadline for transposition was March 21, 2016.

According to the commission, the directive aims to improve consumer protection measures across the EU by introducing EU-wide responsible lending practices.

 

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