Mr Jonás Fernández Álvarez
Member of the European Parliament
Rapporteur for the Banking Package
European Parliament

 cc: Ms Isabel Andrade

 Brussels, 20 december 2022

Dear Mr Fernández,

CRR and CRD treatment of home loans - Request for support for amendments 1302, 1312, 1343, 1347, 1351, 1359 & 1373

The European Property Federation (36120303854-92) represents all aspects of property ownership, investment, rental and brokerage: residential and commercial landlords, housing companies, commercial property investment and development companies, shopping centres, the property interests of the institutional investors, estate agents and real estate training institutes.

 We are contacting you in relation to CRR and CRD review to share our considerations on the treatment of home loans. We are very concerned about a potential rise in the cost of credit due to the transposition of the Basel norms despite the low-risk profile of European home loans.

 It is our understanding that the G20 mandate called for “no significant capital increase”, yet the current reforms would result in an overall capital increase close to 18%. For real estate exposures, in Member States where institutions use the internal-ratings based approach, the risk weight may increase from 12.5% on average today to 25% when the framework is fully completed.

 A rise in the cost of capital and thus the cost of credit is bound to threaten the affordability of homeownership, especially for first-time homebuyers, as financial institutions risk favouring up-front cash payments with direct fallout for rental markets.

 In some Member States, the fixed-rate loan model ensures high stability both for consumers – the monthly payments are determined in advance – and for financial institutions. Borrowers are less subject to market risk and fluctuations. The rise in the cost of capital due to the proposed risk weights may endanger this fixed-rate model. The decision by the Basel Committee to focus on loan-to-value instead of loan-to-revenue may already have an impact on fixed rates.

 In order to mitigate the impact, the European Commission proposed a transitory measure (in Article 465-5), the aim of which is to protect the European specificity of low-risk home loans through a more proportionate approach. Double recourse and careful loan origination policies are key factors in the reduction of risk. They justify mitigating the impact of higher risk weights when eligibility criteria are met, all the more so that mortgage lending has proven resilient through economic hardship including the COVID-19 crisis, as demonstrated by lasting low default rates. The share of non-performing loans is down to historically low levels.

 This transitional measure in CRR/D is therefore essential and we call on you to maintain it and make it permanent by supporting amendments 1302 and 1312 by Gilles Boyer as well as those by Markus Ferber to extend by five years the phasing-in linked to the transitional treatment (AM 1343, 1347, 1351, 1359, 1373 for instance).

 Finally, the reference to EBA’s follow-up report should be kept in the text, as this would be an opportunity to study in depth the stakes and consequences around this transitional regime and better assess the way forward.

 Yours sincerely,

 Michael MacBrien
Director General