Katie Price may believe that ‘closer fiscal union’ is the answer to the eurozone crisis, but a recent move by EU pointy heads could push 68,000 UK mortgage owners into arrears - proving that one size really doesn’t fit all.
The new draft directive, discovered by the FT, is targeting the way that UK banks deal with their late-payers. It demands that all European Union loans be treated as if they are in default when they are 90 days in arrears. This is standard practice in the eurozone, but in the UK, banks allow 180 days breathing room to retail mortgage borrowers that are struggling to make their payments.
The new bank directive is part of a larger package of reforms, seeking to make the UK banking sector safer and bring it into line with EU bank law. But, should the legislation be passed, more homeowners and businesses will default on their mortgages, which will push up capital charges and ultimately pile pounds on to the cost of taking out loans.
It will also interfere with banks’ current system of forbearance – the practice that allows customers more time to pay. Currently, 68,000 mortgages are in forbearance. These people will be automatically pushed into arrears.
The Bank of England has stated that if the EU gets its way, the UK arrears rate will increase by 50%. The British Banking Association has also warned that, during these tough economic times, consumers need the extra time to refinance or trade down to a smaller home.
‘Our objective is to ensure consistency across the EU, and a level playing field for all financial institutions, which is not currently the case,’ argues a spokesman for Michel Barnier, the European Union internal markets commissioner. But UK homeowners could end up paying the price for a uniform banking code.