Rules on early repayment are the major bone of contention, with legislative measures perceived as the most effective option. However, their actual use is made contingent on further impact assessments. So the threat to put an end to the German practice through the European channel has simply been deferred, not dismissed. The heterogeneity of the EU market certainly has its positive aspects in terms of financial stability. Pushing further ahead with harmonization beyond the market processes sparked by competition and consolidation would therefore appear justified only if this promised significant benefits for prosperity and growth in Europe by leveling large differentials in interest rates on the sub-markets.
The structure of European mortgage markets
European mortgage markets can be roughly divided into two classes. One comprises countries featuring a more “sophisticated” mortgage market with a favorable regulatory environment. Foremost among these are the UK, Ireland, the Netherlands and Denmark. The second group consists of countries with “less developed” mortgage markets characterized by not particularly conducive institutional framework conditions. This tends to hold for Italy, France, Greece, Belgium and Austria. However, assigning individual countries categorically to one group or the other is difficult and should also include other factors impacting the mortgage market.
There is no doubt that mortgage markets in Europe are very varied. But key to the question of market efficiency is how competition works towards price convergence. Harmonization and integration are, after all, not an end in themselves; ultimately they are supposed to lead to lower prices and hence greater prosperity and growth.
All in all, though, in the past years a strong process of convergence has taken place in mortgage lending. The interest rate differentials between the individual countries are already narrow, particularly in respect of other types of lending to the household sector.
This is all the more positive given the considerable market heterogeneity and the attendant, still relatively low, level of cross-border transactions. To bolster achievements so far and make further progress – particularly on direct cross-border lending – competition needs to be promoted more actively, also between the differently structured sub-markets. Discrimination-free market access is essential to this.