Lenders may have to link SVR to base rate under European rulesadmin June 12th, 2012
A proposal in the European mortgage directive could force lenders to align their variable rates with some form of reference rate, such as the Bank of England base rate.
Yesterday, the European Monetary and Economic Affairs committee – ECON – voted through a number of draft proposals.
The proposals state that where the credit agreement is a variable rate loan; Member states shall ensure that any index or reference rate used to calculate the borrowing rate is clear, accessible, objective and verifiable by the parties to the credit agreement and the competent authorities.
This has been interpreted by some as meaning lenders would no longer be able to hike their SVR without clear justification and would need to link it to some form of external reference rate.
The proposals also state that where a credit agreement unconditionally allows variations on the interest rate that are based on external factors, the underlying data for the calculation of the interest rate has to be available for at least 14 years.
The Council of Mortgage Lenders says it is still dissecting the directive and is seeking clarification on whether the proposal means lenders will need to change the way they calculate their SVR.
A CML spokeswoman says it needs to clarify whether the proposal only relates to those lenders that currently calculate their SVR based on a reference rate or whether the directive is proposing that all lenders need to calculate their rate this way.