Demand for Nordea’s home loans declines abruptly

The banks have increased their interest rate margins on home loans appreciably this year

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The number of new home loans granted by Finland’s Nordea Bank has clearly turned downwards in the autumn.
      As recently as last spring, the number of housing loans in terms of euros granted by Nordea was clearly higher than in 2010, but in the autumn the pace began to slow down.
      Ville-Veikko Laukkanen, Nordea Bank’s director responsible for private customers, says that the number of loans granted in the autumn was 6 to 8 per cent lower than last year at the same time.
     
The decline started after Nordea raised its interest rate margins on new housing loans to a higher level.
      Laukkanen reports that still last spring, loan negotiations at Nordea started from an interest rate margin of 0.65 percentage points, but at present, discussions are launched from a level of 0.9%-points.
      In other words, the initial cost of a home loan, before interest is added, has increased by about 40 per cent in a short period.
      According to Laukkanen’s estimate, the combination of the busy spring and the quiet autumn is leading to a situation in which the number of Nordea’s housing loans remains in 2011 at more or less the same level as in 2010.
     
In other banks, the autumn’s plunge has not been recognised or acknowledged, but some of them do report that they have raised their interest rate margins appreciably.
      However, the banks are inclined to exaggerate the size of their margins in public, while the final price of taking out the loan always depends on the customer.
     
In addition to the margin charged by the lending bank, a reference rate of interest, for example the 12-month Euribor rate, will be levied on the loan.
      For example, Handelsbanken states that the margins have increased ”distinctly” over the past 12 months.
      The interest rate margins on new housing loans here are currently varying between 1.0 and 1.4 percentage points.
      OP-Pohjola Bank has noticed ”a slight increase towards the end of the year”, which is why they are currently offering loans at a margin of close to 1.0 percentage points.
      Ålandsbanken is at the same level with its 0.95 percentage points.
      Tapiola Bank reports that they have increased their initial interest rate margin from about 0.5 to 0.7 percentage points to around 0.8 to 0.9 percentage points ”depending on the type of the customer”.
      These margin figures are significant, given the current relatively low level of Euribor rates, which stand at approximately 1.42% for the 3-month and 2.00% for the 12-month rate.
      Not so very long ago, in 2008 and 2009, key customers with banks such as Nordea could secure themselves a loan at a very much more attractive margin of 0.35%-points, and could also feel confident that the Euribor rates would be going down rather than upwards.


Previously in HS International Edition:
  Interest rate margins on housing loans rising again (11.10.2011)
  Average interest rates on housing loans rose slightly in August (1.10.2010)

Links:
  Euro Interbank Offered Rate (Wikipedia)

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