Convergence in European mortgage systems before and after EMU

The European Union's mortgage finance systems remain diverse, despite the introduction of the European Single Market. However, 11 of the 15 members of the European Union have now entered the Economic and Monetary Union (EMU). In this article a three-part typology of convergence is created and linked to two meanings of efficiency. The typology is used to assess the impact of EMU on mortgage system convergence. It is suggested that the single currency will help to shift European mortgage markets from their currently diverse positions, with a variety of intermediation systems, mortgage products and prices, towards an intermediate position of financial integration ('financially competitive convergence') whereby the risk and option-adjusted prices of mortgages will be similar, although institutions and mortgage products will continue to vary. This will be achieved through two mechanisms: First the much greater transparency of pricing of mortgages, and second by making retail savings markets more competitive. However, convergence will also be inhibited by the continued privileged availability of cheap funds to some intermediaries. Even if this barrier were removed, non-financial features of mortgage systems, such as legal frameworks, will prevent the development of a fully integrated market with a standard pan-European mortgage product.