On 14 July 2016, the Act implementing Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property (the "Mortgage Credit Act") enters into force.
The Mortgage Credit Act provides for amendments of the Dutch Financial Supervision Act (Wet op het financieel toezicht, "DFSA") and the Dutch Civil Code (Burgerlijk Wetboek, "DCC"). The Mortgage Credit Act introduces a licence requirement for intermediaries of mortgage credit and provides for a passport regime for those intermediaries. Furthermore, it introduces pre-contractual information requirements, the way of calculating the annual percentage rate of charge, early repayment and arrears, and foreclosure.
The scope of the Mortgage Credit Act is limited to mortgage credit offered to consumers. Commercial mortgage credit is out of scope.
- AMENDMENTS OF THE DFSA AND THE DCC
The Dutch legislator has chosen to implement the Mortgage Credit Directive by amending the DFSA (and further regulations thereto) and the DCC.
Amendments of the DFSA
The public law provisions of the Mortgage Credit Directive are implemented in the DFSA. Before implementation of the Mortgage Credit Directive, Dutch law was already, to a large extent, in line with these public law provisions. Consequently, only a limited number of amendments of the DFSA were required. The most important new rules in the DFSA concern the passport regime for mortgage credit intermediaries (see paragraph 7).
Amendments of the DCC
The private law provisions of the Mortgage Credit Directive were implemented in a new part of the DCC, Part 7.2B. This new part provides for rules relating to:
- pre-contractual information;
- prohibition of tying practices;
- the calculation of the annual percentage rate of charge;
- the right of the consumer to convert non-Euro credit agreements into Euro credit agreements;
- partial or full discharge the obligations under a credit agreement prior to the expiry of that agreement; and
- the obligation to invite the consumer and enter into discussions with him or her if he or she is in arrears and the obligation to apply a waiting period of two months before enforcement/foreclosure.
- MORTGAGE APPLICATION PROCESS: REFLECTION PERIOD OF 14 DAYS
The Mortgage Credit Act will change the current mortgage application process in the Netherlands. Common practice is to send the consumer a mortgage offer on the condition precedent that the consumer will submit certain documents, such as a salary slip, a valuation report of the immovable property and that he or she completes a positive creditworthiness assessment. The consumer signs the mortgage offer and sends it to the mortgage credit provider, after which the credit agreement becomes effective upon fulfilment of the conditions precedent.
The Mortgage Credit Act provides that the credit agreement only becomes effective if the consumer is made an offer that is binding for at least fourteen days. It follows from the explanatory notes to the Mortgage Credit Act that there is no binding offer if an offer is made under a condition precedent that may have adverse effects for consumers.
This means that an additional step (i.e. a reflection period of fourteen days after fulfilment of the conditions precedent) has to be built in in the mortgage credit application process. In practice, the mortgage credit provider will send the consumer a preliminary offer containing the amount of the mortgage loan and the interest rate percentage. If subsequently the conditions precedent are satisfied, the consumer will receive a final offer that is valid for fourteen days. The mortgage loan becomes effective at the moment that the consumer has confirmed that he or she wishes to enter into the mortgage loan.
- PRE-CONTRACTUAL INFORMATION: ESIS
On the basis of the Dutch Code of Conduct for Mortgage Loans (Gedragscode Hypothecaire Financieringen), the credit provider or credit intermediary provides the consumer with the European Standardised Information Sheet ("ESIS") along with the mortgage offer. With the entry into force of the Mortgage Credit Act, a legal basis is created for providing the ESIS to the consumer and detailed rules apply to the content of the ESIS.
The Mortgage Credit Act prohibits changes to the ESIS. The impact thereof on the current practice is as follows:
- the ESIS can no longer be integrated in the mortgage offer;
- additional consumer information can be provided by the credit provider or intermediary, but only through a separate document; and
- some mortgage credit intermediaries drafted their terms and conditions in basic Dutch. Although the legislator aimed to improve the clarity of ESIS, the language in the ESIS is more complicated than the basic Dutch used in mortgage credit documentation.
- UNIFORM CALCULATION OF THE APR
The ESIS must contain the annual percentage rate ("APR"). The APR is the total cost of mortgage credit, expressed as an annual percentage of the total amount of mortgage credit. Costs of mortgage credit are, for example, interest, costs of a valuation report and costs of entering into a life insurance. Civil notary costs do not form part of the APR. In current practice, on the basis of the Dutch Code of Conduct for Mortgage Loans, the APR is generally included in the mortgage offer. The APR will have to be included in the ESIS after entry into force of the Mortgage Credit Act.
A uniform calculation of the APR should enable consumers to compare mortgage credit offers of different European providers. Therefore, offerors of mortgage credit may not derogate from the prescribed method of calculating the APR. In this respect, as well as in respect of the ESIS, the Mortgage Credit Directive provides for maximum harmonization.
- TRANSITORY LAW
Existing mortgage loans
The Mortgage Credit Act applies to mortgage loans entered into on or after the date of entry into force of the Mortgage Credit Act. To mortgage loans entered into before that date, the "old" rules remain applicable.
Amendments to existing mortgage loans
The Explanatory Memorandum states that the Mortgage Credit Act does not apply to interest reviews or amendments of existing mortgage loans (which does not include additional credit to an existing client), provided that the mortgage loan was entered into before the date of entry into force of the Mortgage Credit Act.
The Mortgage Credit Act does not provide for explicit transitional provisions with regard to existing mortgage offers. Taking into account the transitional regime for mortgage loans it stands to reason that the new rules only apply to mortgage offers issued on or after the date of entry into force of the Mortgage Credit Act.
- INTERMEDIARIES IN MORTGAGE CREDIT
Before the entry into force of the Mortgage Credit Act, parties that intermediate in consumer credit or mortgage credit in the Netherlands were already required to obtain a licence. With the entry into force of the Mortgage Credit Act, a license obligation for intermediaries in mortgage credit is required throughout the EU. A novelty in the Netherlands is the European passport for intermediaries in mortgage credit that wish to offer their services cross-borders. Foreign intermediaries will have to apply for a licence in their country of origin and may intermediate in mortgage credit in the Netherlands after having followed a notification procedure. In that event, intermediaries in mortgage credit do not need a separate Dutch license. Likewise, a Dutch intermediary in mortgage credit may apply for a European passport on the basis of its Dutch license and may offer its services in another Member State.
Finally, it is important to note that the Mortgage Credit Act does not introduce a European licence requirement and passport for offering credit. Intermediaries may only intermediate in mortgage credit that is offered by an offeror that has obtained a Dutch license or, where it concerns a bank with its seat outside the Netherlands, a European passport.