All Finnish banks have raised marginal cost of housing loans this autumn

Margins appreciably broader now than 12 monts ago

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Finnish banks have raised the interest margins on new housing loans to a markedly higher level than that which existed a year ago. All nine banks responding to the survey conducted by Helsingin Sanomat say that they have raised their margins in the course of the current autumn.
     
According to the survey, a new loan customer has to pay around 0.1 to 0.4 percentage points more than they would have a year ago.
      For example, an increase of 0.4%-points in the margin of a housing loan of EUR 200,000 would mean an additional interest burden of EUR 800 annually.
      ”Raising the margins has been an inevitable move. When the funding of a bank goes up in price, it has to reflect on its lending as well”, said Reijo Karhinen, the Executive Chairman of the OP-Pohjola Group, on Thursday. Karhinen regards the previous lower margins as a mistake.
      The rise in the margins only applies to new housing loan customers, as the bank cannot unilaterally change the old contracts unless it is on the brink of bankruptcy - and maybe not even then.
     
The highest average rise has been announced by Nordea, which has effectively doubled its margin.
      A year ago, the negotiations on loan terms started from a margin of 0.35%-points, but today the starting margin is 0.7%-points.
      A good customer’s loan margin can now be 0.5%-points, but a risk customer will have to pay 0.8 percentage points.
      Most other Finnish banks, including Sampo Bank, Nooa Bank, Hypo Bank, Handelsbanken, and Tapiola Bank have installed the same upper limit.
      However, Ålandsbanken posts a top margin of 0.9 percentage points, while Aktia’s margin is 1.0%-points for risk customers.
      During the summer the banks' margin of new housing loans was down at slightly more than 0.3%-points, but since then the change in the tariffs used has been abrupt and powerful.
     
However, the final cost of a housing loan is a combination of the margin and the reference rate of interest. In other words, the bank adds the margin of its own to the reference rate used, for example a 12-month Euribor rate.
      Until the beginning of October, the Euribor reference rates were growing briskly, but since then they have been sliding downwards with equal vigour. The cost of a housing loan depends on the client’s interest rate readjustment date.
      For example, at the beginning of October, the 12-month Euribor rose to 5.525 per cent, but it had declined to 4.7 per cent by yesterday - Thursday.
      A decline of 0.825%-points in the reference rate of interest of a housing loan is thus of much greater significance than a rise of 0.1 to 0.4 percentage points in the bank's margin on the same loan.
     
Avoid a two-home trap has been the basic message of Finnish banks this autumn. However, according to the survey by Helsingin Sanomat, banks were not completely unwilling to finance two homes, although their attitude towards such a situation has tightened over the course of the year.
      If the customer’s repayment ability is good, he or she can be granted a loan even for two homes.
      ”We evaluate the realistic sales price of a home as well as the length of time it would take for the home to sell. We also calculate the size of the loans in question in each case”, reports Credit Manager Tapani Nyrhi from Tapiola Bank.


Previously in HS International Edition:
  Nordea could raise interest margins of existing home loans (18.9.2008)
  Expert: Finnish bank accounts are safe (16.9.2008)

Helsingin Sanomat