Mortgage Credit

Housing Loans

Housing loans are regulated under Part IX of the Consumer Credit Act. The definition of a housing loan was extended in 2004 and covers the following;

  • a loan to finance the acquisition on the security of a house occupied by the borrower as his principal residence or the principal residence of his or her dependants;
  • a refinancing of an acquisition loan
  • a loan on the security of a house where the person to whom credit is provided is a consumer.
The Consumer Credit Act defines a consumer as a natural person acting outside his business or such other persons as are declared to be consumers by ministerial order. No such ministerial order has been made.

The AIB PLC -v- Higgins & Ors, [2010] IEHC 219 Kelly J. interpreted the term “consumer,” narrowly. A wider interpretation was taken in Ulster Bank Ireland Limited -v- Healy [2014] IEHC 96, which related to whether the question of whether the claim that a property investor was a consumer, merited a reference to a plenary hearing.

Barrett J. wrote

“ The court does not consider that a consumer who on one or more occasions places saved or borrowed monies in a particular form of investment, such as property, with a view to making a profit therefrom necessarily becomes a person whose business, trade or profession is that of professional investor or property investor and thus no longer a “consumer” for the purposes of the Consumer Credit Act. Of course, there must come a point when a person crosses the Rubicon from consumer to professional…….

It seems to the court that it could be argued that a good example of a person satisfying their individual needs in terms of private consumption is a man such as Mr. Healy engaging in personal investments, using either saved or borrowed monies, so as to meet the retirement or other future requirements of himself or his family”. …………

Having regard to the criteria propounded respectively by Hardiman J. and McKechnie J. in the Aer Rianta c.p.t. v. Ryanair Limited [2001] 4 I.R. 607 and Harrisrange Limited v. Michael Duncan [2003] 4 I.R. 1 cases, the court considers that Mr. Healy satisfies the low hurdle that arises for a defendant seeking leave to defend


Housing Loan Warnings

Certain information and warnings are required on information documents, application forms relating to a housing loan and in the loan agreement itself.   The following is required for housing loans.

WARNING YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP PAYMENTS

ON A MORTGAGE OR ANY OTHER LOAN SECURED ON IT.

In the case of a variable rate loan, the following warning is required

THE PAYMENT RATES ON THIS HOUSING LOAN MAY BE ADJUSTED BY THE LENDER FROM TIME TO TIME.

There are certain other warnings and requirements for endowment policy backed mortgages.

WARNING

THERE IS NO GUARANTEE THAT THE PROCEEDS OF THE INSURANCE POLICY WILL BE SUFFICIENT TO REPAY THE LOAN IN FULL WHEN IT BECOMES DUE FOR REPAYMENT


Housing Loan Agreement Contents

The Housing loan agreement must have certain information on the front page in accordance with the following prescribed format. A variation of a Housing Loan may be required to follow the same format, particularly if there are changes to any of the key terms.

Important Information as at [         ]

1.         Amount of credit advanced :£ / €

2.         Period of agreement :

3.         Number of repayment instalments :

4.         Amount of each instalment :£ / €

5.         Total amount repayable :£ / €

6.         Cost of this credit (5 minus 1) :£ / €

7.         APR* :

8.         Amount of endowment premium (if applicable) :£ / €

9.         Amount of mortgage protection premium (ifapplicable) :£ / €

10.       Effect on amount of instalment of 1% increase in

first year in interest rate** :£ / €

*Annual percentage rate of charge.

**This is the amount by which the instalment repayment will increase in the event of a 1% increase at the start of the first year in the interest rate on which the

above calculations are based

The mortgage lender is required to issue a copy of the mortgage at the time the loan is made or as soon as practicable afterwards. It must issue statements setting out the total amounts outstanding from time to time.This requirement does not apply to a credit agreement to which the below mentioned European Union (Consumer Mortgage Credit Agreements) Regulations apply


Fees, Arrears and Repayment

If fees are payable in respect of any of the following, then a statement must appear with reasonable prominence that the fee is payable specifying the amount and it how it is determined. This must be included on any information document, application form and in the loan approval/agreement itself:

  • making, accepting or administering the loan or application;
  • valuation of the security;
  • legal services in connection with the loan;
  • services provided by a mortgage agent in relation to the loan;
  • non-acceptance of the offer or non-approval.

Where it is the lender’s policy to charge interest on arrears of a housing loan, any communication in relation to arrears payment, must state the amount of increase in interest and other charges. The information is required to be specified in any information document application for and in the loan offer/approval.

A communication which refers to the possibility of taking possession under the mortgage must contain an estimate of the costs to the borrower.

A borrower is allowed to repay a mortgage loan prior to the agreed date, without incurring a fee for prepayment. This is subject to an exception for fixed interest rates, in which case, the manner of calculation of the break fee must be stated.


Housing Loan Requirements

The borrower is entitled to a copy of the valuation report on approval or rejection of loan offer. The mortgagor must be allowed to arrange his own insurance, and no additional charge can be made. The mortgage lender cannot charge the mortgagor for the costs of investigating title to the security.

The mortgage lender must ensure that a mortgage protection policy is procured in a Housing loan case, except where one of the following exceptions are applicable:

  • the house is not intended for use as the principal residence of the borrower or of his dependents;
  • the borrower is a member of a class of persons not acceptable to insurers or is acceptable at a higher premium only;
  • the borrower is over 50 years old; or
  • the borrower has other life assurance providing for payment of a sum not less than the principal outstanding on death.

A Housing loan provider cannot offer a housing loan to a borrower on condition that he must avail of another service with the lender.


Communicating with the Borrower

A visit or telephone call to a consumer without consent is prohibited:

  • at his place of employment or business unless the borrower resides at that place and all reasonable efforts to make contact with him have failed;
  • between the hours of 9 pm and 9 am Monday to Saturday;
  • on Sundays and Bank Holidays;
  • to a consumer’s employer or family member without separate written consent.

There are restrictions on sending written communication relating to a credit agreement other than in a sealed envelope with nothing other the borrower’s name and address, a return address PO box number and if desired, the words “personal” or “private.”

Written communications to members of the consumer’s family and employer are prohibited unless that person is a party to the loan agreement, or in the case of a housing loan, there is separate specific written consent or it relates to Family Home Protection Act matters.


EU (Consumer Mortgage Credit) Regulations I

The European Union (Consumer Mortgage Credit Agreements) Regulations 2016 (the Regulations) came into force on 21 March 2016. The Regulations transpose Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property (the Mortgage Credit Directive) into Irish law.

The Regulations apply to:

  • a credit agreement which is secured by a charge, a mortgage or by another comparable security used in an EEA Member State on residential immovable property or secured by a right related to residential immovable property, and where the person to whom the credit is provided is a consumer;
  •  a credit agreement the purpose of which is to acquire or retain property rights in land or in an existing or projected building, and where the person to whom the credit is provided is a consumer.

EU (Consumer Mortgage Credit) Regulations II

The Regulations do not apply to the following:

  • an equity release credit agreement where the creditor contributes a lump sum, periodic payments or other forms of credit disbursement in return for a sum deriving from the future sale of a residential immovable property or a right relating to residential immovable property; and will not seek repayment of the credit until the occurrence of one or more than one life event that is specified in the credit agreement, unless the consumer breaches his or her contractual obligations in circumstances which allow the creditor to terminate the credit agreement;
  • a credit agreement where the credit is granted by an employer to an employee or employees as a secondary activity in circumstances where such credit is offered free of interest or at an annual percentage rate of charge lower than that prevailing in the market and not offered to the public generally;
  • a credit agreement where the credit is granted free of interest and without any other charges except those that recover costs directly related to the securing of the credit;
  • a credit agreement in the form of an overdraft facility and where the credit has to be repaid within one month;
  • a credit agreement that is the outcome of a settlement reached in court proceedings or in proceedings before another statutory authority;
  • a credit agreement, not secured on residential immovable property, which relates to the deferred payment free of charge of an existing debt;
  • a housing loan made by a local authority, or any other loan not secured by a mortgage made by a local authority for the purposes of carrying out improvement works to a house.

A life event for the above purposes is any of the following

  • the death of the consumer (or a surviving dependent of the consumer, or a nominated person residing in the property);
  • the permanent vacation of the property (for example, the consumer ceasing to reside in the property and with no reasonable prospect of return);
  • the sale of the property;
  • the consumer acquires another property as an alternative principal residence.

Conduct of Business Obligations to Consumers

A creditor or mortgage credit intermediary shall act honestly, fairly, transparently and professionally, taking account of the rights and interests of the consumer, when devising or otherwise creating credit products, granting or acting as an intermediary or providing advisory services on credit (and where appropriate ancillary services) to consumers, or executing a credit agreement.

The creditor and mortgage credit intermediary shall at on the basis of

  • information about the consumer’s circumstances,
  • any specific requirement made known by the consumer,
  • reasonable assumptions about risks to the consumer’s situation over the term of the credit agreement.

Creditors and mortgage credit intermediaries must remunerate their staff, in a manner that does not impede compliance with the above obligations. The remuneration policy must be consistent with and promote sound and effective risk management and must not encourage risk-taking that exceeds the level of tolerated risk of the creditor. It must be in line with the business strategy, objectives, values and long-term interests of the creditor, and incorporates measures to avoid conflicts of interest, in particular by providing that remuneration is not contingent on the number or proportion of credit applications accepted.


General information

Clear and comprehensible general information about credit agreements shall be made available by creditors, or where applicable by tied credit intermediaries at all times on paper or on another durable medium or in electronic form. Such general information shall include at least the following:

  • the identity and the geographical address of the issuer of the information;
  • the purposes for which the credit may be used;
  • the forms of security, including, where applicable, the possibility for it to be located in another EEA Member State;
  • the possible duration of the credit agreements;
  • types of available borrowing rate, indicating whether fixed or variable or both, with a short description of the characteristics of a fixed and variable rate, including related implications for the consumer;
  • where foreign currency loans are available, an indication of the foreign currency or currencies, including an explanation of the implications for the consumer where the credit is denominated in a foreign currency;
  • a representative example of the total amount of credit, the total cost of the credit to the consumer, the total amount payable by the consumer and the annual percentage rate of charge;
  • an indication of possible further costs, not included in the total cost of the credit to the consumer, to be paid in connection with a credit agreement;
  • the range of different options available for reimbursing the credit to the creditor, including the number, frequency and amount of the regular repayment instalments;
  • where applicable, a clear and concise statement that compliance with the terms and conditions of the credit agreement does not guarantee repayment of the total amount of credit under the credit agreement;
  • a description of the conditions directly relating to early repayment;
  • whether a valuation of the property is necessary and, where applicable, who is responsible for ensuring that the valuation is carried out, and whether any related costs arise for the consumer;
  • an indication of ancillary services the consumer is obliged to acquire in order to obtain the credit or to obtain it on the terms and conditions marketed and, where applicable, a clarification that the ancillary services may be purchased from a provider that is not the creditor; and
  • a general warning concerning possible consequences of non-compliance with the commitments linked to the credit agreement.

Pre-contractual information

A creditor, and where applicable a mortgage credit intermediary, shall without undue delay after the consumer has given the necessary information on his or her needs, financial situation and preferences  and  in good time before the consumer is bound by any credit agreement or offer, provide the consumer with the personalised information needed to enable the consumer to compare the credits available on the market, to assess their implications and to make an informed decision on whether to conclude a credit agreement.

The personalised information shall be provided, on paper or on another durable medium, by means of the European Standardised Information Sheet (ESIS).  When an offer binding on the creditor is provided to the consumer, it shall be provided on paper or on another durable medium and shall be accompanied by an ESIS and by a copy of the draft credit agreement. The requirements of the ESIS are set out at the end of these notes.

For a period of 30 days after the making of the offer of credit (the “reflection period”), the consumer shall be permitted to decide whether to accept the offer. During the reflection period, the offer of credit shall be binding on the creditor and the consumer may accept the offer at any time during the reflection period.

Where the borrowing rate or other costs applicable to the offer of credit are determined on the basis of the selling of underlying bonds or other long-term funding instruments, the borrowing rate or other costs may vary from that stated in the offer in accordance with the value of the underlying bond or another long-term funding instrument.

Any additional information which the creditor or, where applicable, the mortgage credit intermediary, may provide to the consumer or is required to provide to the consumer shall be given in a separate document which may be annexed to the ESIS.


Adequate explanations

A creditor and, where applicable a mortgage credit intermediary, shall provide adequate explanations to the consumer on the proposed credit agreement and any ancillary services, in order to place the consumer in a position enabling him or her to assess whether the proposed credit agreement and ancillary services are adapted to his or her needs and financial situation;

The explanations shall, where applicable, include

  • the requisite pre-contractual information to be provided;
  • the essential characteristics of the products proposed;
  • the specific effects the products proposed may have on the consumer, including the consequences of default in payment by the consumer; and
  • where ancillary services are bundled with a credit agreement, whether each component of the bundle can be terminated separately and the implications for the consumer of doing so.

Obligation to Assess Creditworthiness I

Before concluding a credit agreement, a creditor shall make a thorough assessment of the consumer’s creditworthiness. That assessment shall take appropriate account of factors relevant to verifying the prospect of the consumer being able to meet his or her obligations under the credit agreement.

A creditor shall ensure that the procedures and information on which the assessment is based are established, documented and maintained. The assessment of creditworthiness shall not rely predominantly on the value of the residential immovable property exceeding the amount of the credit or the assumption that the residential immovable property will increase in value unless the purpose of the credit agreement is to construct or renovate the residential immovable property.

Where a creditor concludes a credit agreement with a consumer, the creditor shall not subsequently cancel or alter the credit agreement to the detriment of the consumer on the grounds that the assessment of creditworthiness was incorrectly conducted. This paragraph shall not apply where it is demonstrated that the consumer knowingly withheld or falsified the information.


Obligation to Assess Creditworthiness II

A creditor shall only make credit available to the consumer where the result of the creditworthiness assessment indicates that the consumer’s obligations resulting from the credit agreement are likely to be met in the manner required under that agreement.

Where a creditor consults a database as part of the creditworthiness assessment, the creditor shall inform the consumer in advance that a database is to be consulted.

Where the credit application is refused, the creditor shall inform the consumer without delay of the refusal and, where applicable, that the decision is based on automated processing of data. Where the refusal is based on the result of the database consultation, the creditor shall inform the consumer of the result of such consultation and of the particulars of the database consulted.

 


Property valuation

A creditor shall use reliable standards, such as those developed by the International Valuation Standards Council, the European Group of Valuers’ Associations or the Royal Institution of Chartered Surveyors, when carrying out a property valuation of residential immovable property for credit purposes, or take reasonable steps to ensure that reliable standards are applied where a valuation is conducted by a third party.

A creditor shall ensure that internal and external appraisers conducting property valuations are professionally competent and sufficiently independent from the credit underwriting process so that they can provide an impartial and objective valuation, which shall be documented in a durable medium and of which a record shall be kept by the creditor.


Disclosure and Verification of Consumer Information

The assessment of creditworthiness shall be carried out on the basis of information on the consumer’s income and expenses and other financial and economic circumstances which is necessary, sufficient and proportionate. The information shall be obtained by the creditor from relevant internal or external sources, including the consumer, and including information provided to the mortgage credit intermediary during the credit application process. The information shall be appropriately verified, including through reference to independently verifiable documentation when necessary.

A mortgage credit intermediary shall accurately submit the necessary information obtained from the consumer to the relevant creditor to enable the creditworthiness assessment to be carried out.

A creditor shall specify, in a clear and straightforward way at the pre-contractual phase, the necessary information and independently verifiable evidence that the consumer needs to provide and the timeframe within which the consumer needs to provide the information. Such a request for information shall be proportionate and limited to what is necessary to conduct a proper creditworthiness assessment.

A creditor may seek clarification of the information received in response to that request where necessary to enable the assessment of creditworthiness.


Disclosure and Verification of Consumer Information

A creditor may not terminate the credit agreement on the grounds that the information provided by the consumer before the conclusion of the credit agreement was incomplete unless it can be demonstrated that the consumer knowingly withheld or falsified information.

The creditor, or mortgage credit intermediary as appropriate, shall inform the consumer of the need to provide correct information in response to the request and that such information needs to be as complete as necessary in order to conduct a proper creditworthiness assessment.

The creditor, or mortgage credit intermediary as appropriate, shall warn the consumer that, where the creditor is unable to carry out an assessment of creditworthiness because the consumer chooses not to provide the information or verification necessary for an assessment of creditworthiness, the credit cannot be granted. That warning may be provided in a standardised format.


References and Sources

Irish Texts

Timothy Bird Consumer Credit Law 1998

Breslin Banking law + Supplement     3rd Ed  2013

Mortgages Law & Practice     Maddox 2nd Ed            2017

NAMA Act 2009: A Reference Guide Raghallaigh, Kennedy, Whelan

Money Laundering & Anti-Terrorist Financing Act 2010

Financial & Emergency Provision Legislation Annotated      2011

Shelley & McGrath     National Asset Management Agency Act Annotated 2011

Dodd & Carroll            Law Relating to NAMA 2012  0

Ashe & Reid    Anti-Money Laundering: Risks, Governance & Compliance             2013

Johnston & Ors           Arthur Cox Banking Law Handbook               2007

Dr Mary Donnelly  The Law of Credit and Security, 2nd Ed, 2015

UK Texts

A Hudson The Law of Finance 2nd Ed (Sweet and Maxwell 2013)

Veil (Ed) European capital markets law (Hart Publishing 2013)

IG MacNeil An Introduction to the Law on Financial Investment 2nd Ed ( Hart Publishing 2012)

E Ferran Principles of Corporate Finance 2nd Ed ( OUP 2014)

Gullifer (ed) Goode and Gullifer on legal problems of credit and security (6th edn Sweet and Maxwell London 2017).

MA Clarke et al (eds) Commercial Law: Text, Cases and Materials (5th edn OUP Oxford 2017)

McKendrick (ed) Goode on commercial law (5th edn Penguin London 2017)

G McCormack Secured credit under English and American law (CUP Cambridge 2004)

L Gullifer and J Payne Corporate Finance (2nd edn Hart Oxford 2015)

D Sheehan The Principles of Personal Property Law (2nd edn Hart Oxford 2017)

Ross Cranston, Emilios Avgouleas, Kristin van Zwieten, Christopher Hare, and Theodor van Sante Principles of Banking Law 3rd Ed 2018

E.P. Ellinger, E. Lomnicka, and C. Hare Ellinger’s Modern Banking Law 5th Ed 2011

Andrew Haynes The Law Relating to International Banking  Bloomsbury Professional 2009

Charles Proctor Mann on the Legal Aspect of Money 7th Ed 2012

Charles Proctor The Law and Practice of International Banking 2nd Ed  2015

Sheelagh McCracken The Banker’s Remedy of Set-Off   2010 Bloomsbury Professional

Louise Gullifer, Jennifer Payne Banking & Financial Law 2018

Hubert Picarda QC The Law Relating to Receivers, Managers and Administrators 4th Ed  2006 5th Ed 2019

Lightman & Moss on the Law of Administrators and Receivers of Companies 6th Ed  Sweet & Maxwell 2017

Timothy N Parsons  Lingard’s Bank Security Documents 6th Ed 2015