EU proposes tighter mortgage lending rules

European mortgage firms are to be bound by new rules designed to safeguard consumer protection.

Draft EU proposals seen by Reuters indicate that a consumer protection directive could be put forward next year.

The document read: "The recent developments in sub-prime markets have illustrated the need for transparency in the mortgage funding business, particularly from the end investors' perspective.

"The (European) Commission considers it essential that mortgage lenders lend responsibly, in particular by thoroughly assessing the creditworthiness of the consumer in the context of the transaction envisaged."

It went on to say that the Commission believes that a directive is the best way of addressing issues such as pre-contractual information, responsible lending, annual percentage rate of charge, and early repayment.

The directive proposal will be preceded by "a rigorous cost-benefit assessment".

The sub-prime mortgage crisis in the US has had significant knock-on effects.

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