DECREE LAW ON MORTGAGES – RECOMMENDATION SENT TO GOVERNMENT AND PARLIAMENT
PRESS RELEASE
PRESS RELEASE
DECREE LAW ON MORTGAGES: ANTITRUST AUTHORITY SAYS GIVING BORROWERS RIGHT TO RENEGOTIATE IS POSITIVE BUT BANKS SHOULD OFFER BETTER TERMS OF THEIR OWN ACCORD
Need to ensure free portability and adequate information for customers. Recommendation sent to Government and Parliament.
The decree law on mortgages, which stipulates the right of renegotiation on predetermined conditions, is aimed at assisting borrowers whose circumstances are practically unsustainable. Nevertheless, the banks should be able, of their own accord, to offer their customers better conditions and there should be a definitive guarantee of portability at no charge. So writes the Italian Competition Authority in a report sent to the Government and to Parliament which also stresses the need for an adequate flow of information to customers.
The Authority emphasizes that in the last two years the higher cost of money has led to increases in indexed instalments, depending on the term and size of the mortgage, of up to 20 per cent. So the decree is addressing a real need. In order for it to generate positive effects without discouraging competition, however, three essential prerequisites must be safeguarded.
1) Enable better conditions
In the Authority's view, it is important that individual banks and finance houses that are signatories to the Convention should be able autonomously to adopt conditions and/or commercial strategies that are better for customers, thus avoiding the standardization of offerings and the attendant risk of reduced competition.
2) Guarantee portability
In order to maintain the competitive stimulus of multiple choice, it is crucial to guarantee that mortgages can be substituted free of charge and without notarial fees. The Authority views the present process of portability as still being sticky ground.
3) Ensure transparency of conditions
The Authority's position is that the borrower must be enabled to assess the effects of any renegotiation, including not only the lower repayment instalments but also the higher costs associated with extending the term as well as the risks involved in the various possible fluctuations of interest rates. It is essential that summary information sheets be provided, showing estimates of costs and predicted benefits based, for example, on alternative hypotheses as to rates changes and the extension of the duration of the loan. Only on the basis of clear and exhaustive information can the customer decide whether to seek alternative solutions such as the substitution of the mortgage at a competing bank, thereby positively influencing competitive forces.
Rome, 27 May 2008