Autumn fall in interest margins on housing loans peters out

Margins have come down from summer highs, but future level will depend on developments in the housing market

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The interest margins on housing loans, which had tumbled from the record levels of last summer, now seem to have ground to a halt at around 0.8 to 0.9 per cent.
     
Phone interviews among Finnish banks conducted by Helsingin Sanomat indicated that the margin of the day at most banks is below 1.0%, while none of the banks promised to drop the margin to less than 0.8% - at least not publicly.
      The interest margins for new housing loans have been at this level throughout the entire autumn.
      A margin is a payment charged by the bank that a borrower will have to pay in addition to the market rate of interest.
     
As a result of the financial crisis, the interest margins continued to rise in the course of the spring and summer, reaching a record high, the highest in many years. Only a few banks granted new loans at an interest margin of less than 1.0 per cent.
      The banks explained the raising of the margins by saying that they also had to borrow money at higher rates of interest than normal.
      Prior to this, the margins fell to 0.4% on average in the course of a couple of years, which is the lowest level of all time. Some customers even managed to get loans at a margin of 0.3%.
      Now the margins have dropped from the peak level, as financial markets have calmed down and the banks’ funding has become clearly easier.
      The banks no longer promise any major cuts on the current level of interest margins.
      ”Presumably, a long-term level has now been found. It is always difficult to predict these trends, but we feel that we have reached a level that will remain stable for some time”, says Harry Peltonen, the director of Handelsbanken’s Kamppi branch.
     
What will happen in the global financial markets is one of the questions that will have an impact on the future level of interest margins. If the banks’ own borrowing gets easier, the trend should also be seen in the levels of margins.
      According to director Tom Miller from Nordea, another factor affecting the margins is the situation in housing sales.
      ”The demand for housing loans increased last summer, creating competition in the market and causing margins to fall. Just now it seems that the level is stable, but it all depends on what will happen in the housing markets”, says Miller.
      Whatever the situation, competition is the best friend of a consumer.
      ”We will not be the first to reduce the margins, but if everyone else does it we will have to follow suit”, says Harri Lauslahti, the managing director of Tapiola Bank.
     
Whatever the banks comment on the level of their margins in public, many customers still get their loans at a lower margin. Most banks tailor their margins for each customer individually.
      ”If a customer has a very good financial situation, and a high income level compared with the loan amount and that of interests and instalments, or if he or she is a major customer, it is naturally possible to tinker with the level of margins”, says Handelsbanken’s Peltonen.
      On the other hand, if a customer’s collaterals are poor, while he or she has no permanent job, it is likely that the margin will climb to more than 1.0 per cent.
      Bank director Mikko Hyttinen from OP-Pohjola Group says that their banks always draw up an individual credit assessment for all customers.
      ”The purpose of such an assessment is to evaluate a given customer’s long-term ability to pay back a loan, the level of income, and such things”, Hyttinen notes.
     
All banks say that the level of margins is also attributable to the fact of whether or not a given customer handles most of his or her banking transactions at the same bank from where the loan has been taken.
      ”We naturally look at all aspects. We also appreciate a customer’s saving in advance, while of course the target of the loan has to be in a sensible proportion to the borrower’s earnings”, says director Kenneth Kaarnimo from Sampo Bank.


Previously in HS International Edition:
  Finnish banks divide private customers into different categories (7.6.2007)
  Number of new housing loans turned clearly downwards in August (1.10.2008)
  Nordea could raise interest margins of existing home loans (18.9.2008)

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