Section 4 – Requirements regarding creditworthiness assessment

1.1 When verifying a consumer's prospect to meet his/her obligation under the credit agreement as referred to in Article 18 of Directive 2014/17/EU, the creditor should make reasonable enquiries and take reasonable steps to verify the consumer's underlying income capacity, the consumer's income history and any variability over time.

1.2 In the case of consumers that are self-employed or have seasonal or other irregular income, the creditor should make reasonable enquiries and take reasonable steps to verify information that is related to the consumer's ability to meet his/her obligations under the credit agreement, including profit capacity and third-party verification documenting such income.

2.1 The creditor should maintain complete documentation of the information that leads to mortgage approval, and maintain this documentation for at least the duration of the credit agreement.

2.2 The creditor should ensure that a record with an adequate explanation of the steps taken to verify income is readily available for competent authorities. The record should at least document the income history collected for each applicant.

3.1 To reliably carry out creditworthiness assessments, the creditor should design loan documentation in a way that helps to identify and to prevent misrepresentation of information by the consumer, the creditor, or a credit intermediary.

4.1 When assessing the consumer‘s ability to meet his/her obligations under the credit agreement, the creditor should take into account relevant factors that could influence the consumer’s ability to meet his/her obligations and without inducing undue hardship and over-indebtedness. The factors may include other servicing obligations, their interest rates, and the outstanding principal on such debt; evidence of any missed payments; as well as directly relevant taxes and insurance, where known.

4.2 The creditor should establish sound processes to assess the consumer’s ability to meet obligations under the credit agreement and maintain up-to-date records of those procedures. The creditor should review these processes at regular intervals.

4.3 If the loan term extends past the consumer’s expected retirement age, the creditor should take appropriate account of the adequacy of the consumer’s likely income and ability to continue to meet obligations under the credit agreement in retirement.

4.4 The creditor should ensure that the consumer’s ability to meet obligations under the credit agreement is not based on the expected significant increase in the consumer’s income unless the documentation provides sufficient evidence.

5.1 When assessing the consumer’s ability to meet obligations under the credit agreement, the creditor should make reasonable allowances for committed and other non-discretionary expenditures, such as the consumer‘s actual obligations, including appropriate substantiation and consideration of the living expenses of the consumer.

6.1 When assessing the consumer’s ability to meet obligations under the credit agreement, the creditor should make prudent allowances for potential negative scenarios in the future, including for example, a reduced income in retirement; an increase in benchmark interest rates in the case of variable rate mortgages; negative amortisation; balloon payments, or deferred payments of principal or interest.