The aim of the EU code, which covers the type of information lending institutions should provide consumers, is to ensure mortgage products are transparent and comparable, writes Laura Slattery

New EU guidelines due to be implemented at the end of this month will make it easier for borrowers to compare mortgage products across Europe. The European Code of Conduct for home loans is a voluntary code covering the type of information lending institutions should provide consumers on domestic and cross-border home loans before any contracts are signed.

Irish lending institutions notified the European Commission late last year of their intention to comply with the code, which requires the provision of certain information at the marketing stage, along with a non-contractual European Standardised Information Sheet (ESIS) at the time of a loan offer.

Mr Felix O'Regan, spokesman for the Irish Bankers' Federation (IBF) and its affiliate organisation, the Irish Mortgage and Savings Association, says that some lenders already have frameworks in place and most will be following the code by the beginning of October. One exception is AIB, which is due to implement the code a few weeks later.

The aim of the EU code, which was drafted by the European Mortgage Federation, is to ensure mortgage products are transparent and comparable. An Irish person taking out a mortgage in Spain, France or Portugal to buy a holiday home or investment property will be given the same information on lending rates and terms of repayment in the same format as at home.

According to Mr Frits Bolkestein, EU Commissioner for the Internal Market, the code will "enable all citizens to derive maximum benefit from the single market". A register of all lending institutions across Europe subscribing to the code is available online.

At home, the code brings in changes "in style rather than in content", says Mr O'Regan.

Most of the personalised information on the information sheet is already required in Ireland under the Consumer Credit Act 1995 but it will now be presented on a separate document posted to mortgage applicants with the letter of offer.

Lending institutions will make copies of the code of conduct available through their branch networks.

"At a high level, I don't think it will have much impact," says Mr Brendan O'Hora, marketing manager for First Active.

But there is one "notable inclusion" in the new documentation that lenders would not typically have provided before - a term-length repayment guide called an illustrative amortisation table.

In this table, the lender will give a breakdown of monthly payments for the first year and yearly figures over the total duration of the loan. The table will contain figures on the amount of capital reimbursed, the amount of interest, outstanding capital, the amount of each instalment and the sum of capital and interest.

"It's based on an assumed interest rate, which could change by the time the borrower draws down the loan and will change over the course of the loan," notes Mr O'Hora.

The table should be clearly labelled as an illustrative guide only and contain a warning if the home loan has a variable interest rate.

"It will show you how the loan will behave over the lifetime of the loan," says Mr Pat Farrell, head of marketing for EBS.

"At the moment, the same information is given in annual mortgage statements, but you get it historically."

Consumer information standards here are generally higher than in other parts of the European Union, according to Mr Farrell, but the EU code will bring an "extra degree of clarity", he continues.

Irish borrowers will be able to compare offers from overseas lenders but Mr Farrell believes that legal hurdles mean it will not yet be practical for someone to source a home loan from Germany for a property in Ireland.

"Over time, I'm sure there will be more convergence," he adds.

In 2003, the European Commission will review the take-up and application of the code. One potential hiccup is a clash between domestic and EU regulators over what information lenders should be required to provide.

In Britain, the Financial Services Authority (FSA), which received new regulatory powers at the end of 2001, has not yet finalised its own consumer information rules for mortgages. Borrowers there will not receive the EU-wide information sheets until the FSA decides on its rules.

In the Republic, a smooth transition should take place by the end of the year.

"One of the difficulties for lenders was that, under the Consumer Credit Act, they are required to do X, Y and Z, so it was 'hang on a minute, the European code requires us to do this, but we don't want to be offside with the domestic regulator'," explains Mr O'Regan at the IBF. "That has all been synchronised now."