The European Banking Authority (EBA) published today a Decision specifying the formula to be used by creditors when calculating the benchmark rate under the Mortgage Credit Directive (MCD). The MCD requires creditors to use, under certain circumstances, a benchmark rate specified by the EBA for the illustrative examples in the European Standardised Information Sheet (ESIS) for variable rate mortgages. The EBA formula will apply 20 days after its publication in the EU Official Journal but can also be used by creditors prior to its formal publication.
The formula developed by the EBA includes an underlying rate that is specific to each Member State, namely the European Central Bank (ECB) rate for Eurozone countries and the national central bank rate for non-Eurozone countries. As a result, the formula will create an EBA benchmark rate that is bespoke to each Member State, and remains up to date over time. However, to ensure that consumers receive the most appropriate example, the EBA rate only applies where no national rate has been set. The EBA's proposal was subject to a six-week consultation period between October and November 2015. The EBA received four responses, a summary of which and the EBA's feedback to those responses, is included in the Report.
The Decision will be translated into the official EU languages. It will be published on the EBA website and in the Official Journal of the European Union.
Background and legal basis
The Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property (Mortgage Credit Directive - MCD) was published in the Official Journal of the Commission on 28 February 2014, with a transposition deadline of 21 March 2016.
Annexes I and II of the MCD specify the information that creditors must include in the ESIS such as the interest rate and other costs. Specifically, for a variable borrowing rate, the ESIS must include a warning that the variability could affect the actual level of the Annual Percentage Rate of Charge (APRC). The warning must be accompanied by an illustrative example of the APRC. In addition, under the heading "Amount of each instalment", the ESIS must include a statement indicating that the borrowing rate is variable and an illustration of a maximum instalment amount. The MCD envisages that in certain circumstances, both illustrative examples will be calculated by creditors using a benchmark rate specified by the EBA.