The European Commission thinks new rules may make it easier to shop around EU members for mortgages but will only legislate if the benefit of such regulation outweighs the cost.
Internal Market Commissioner Charlie McCreevy said people were still reluctant to look beyond national borders for a mortgage due to differences in how they are sold, as well as other barriers such as languages.
Lenders also held back from operating outside home markets because of different legal rules, difficulties in assessing the credit-worthiness of potential customers and variations in how properties are valued.
"More cross-border activity and competition in the EU mortgage market could increase choice, reduce costs, and leave more money in people's pockets at the end of the month," Mr McCreevy said.
At the end of 2003, the outstanding balance in residential mortgages in the European Union was €4.2 trillion, equivalent to 40 per cent of the bloc's gross domestic product.
But Mr McCreevy said he was aware of views inside and outside the industry that the appetite for an EU mortgage market may be too small to make legislating worthwhile.
"There may not be a business case," Mr McCreevy said, adding that the benefit of new rules must demonstrably outweigh the cost. Although mortgages typically represent a person's biggest purchase, only 1 per cent of mortgages were bought outside a home country.
Mr McCreevy said he had experienced the difficulties in applying for a mortgage abroad as he took up his job in Brussels.
But commission officials acknowledged they could come up against major hurdles to creating an EU mortgage market as the issue touched on sensitive member state competences such as taxation and property laws.
A study from research group London Economics will be released next month to help the commission decide if there is a case for action in the mortgage market. A public hearing will then be held towards the end of the year.
The policy debate, which also involves the European Central Bank, will look at whether new players should be allowed to compete with banks in the mortgage market, and whether new ways of offering mortgages should be allowed more widely, such as via the Web.
It will go into whether Brussels should make it easier for people to pay back mortgages early, currently a tricky and expensive move for borrowers in some member states, especially on fixed rate deals.
The commission is also examining a long-touted idea of introducing a European mortgage deed, the so-called Euromortgage, to make it easier for people to move mortgages across borders.