Finns are smart borrowers on home loans - pressure on higher lending rates
(Thomson Reuters ONE) -
Press release 24th April 2012
OP-Pohjola's Asuntoaamu event:
Based on the financial skills survey commissioned by OP-Pohjola, 80% of the
respondents think that housing is expensive in Finland although 63% of the
respondents are not ready to compromise comfort of living even if it meant
pulling in one's horns otherwise. The survey revealed that people are conscious
borrowers.
- In their decisions, Finnish home loan borrowers and lenders take account of
the economic situation and expectations of higher housing costs. In Finland,
loan periods are reasonable and borrowers make repayments according to their
repayment plan, which is why over-indebtedness is uncommon among home loan
borrowers. We do not see the so-called interest-only home loans on the horizon,
in which borrowers pay only interest on the principal balance with the principal
balance unchanged. These loans are, however, common in the other Nordic
countries, especially in Denmark, explains Mikko Hyttinen, Senior Vice
President.
Strong housing finance system in Finland - what does a home loan borrower's
future look like?
Despite the ongoing sovereign debt crisis in the euro area, the world economic
outlook is fair, according to OP-Pohjola's Chief Economist Reijo Heiskanen.
This also applies to Finland. The economic outlook presents challenges to
consumers but there are also bright sides.
- The employment outlook is quite good, but then again real wages will not rise
in the next few years because of the economic uncertainty, i.e. take-home pay
will not increase. Interest rates will remain low for some time but not forever,
points out Heiskanen.
- Home lending rates will rise. However, low interest rates will compensate for
the effects of higher lending rates, which means that borrowing costs will
remain relatively low. The availability of home loans has remained good. The
Finnish housing finance system has turned out to be strong during challenging
times and banks are financially strong, says Hyttinen.
Fixed-rate or variable rate loan?
In Finland, home loans are mostly tied to a Euribor rate and variable rate loans
have in fact proven less costly in general. This dominance of variable rate
loans is one reason why home loans in Finland have been the cheapest in Europe.
- A fixed-rate loan is a potential alternative if it is important for the
borrower that the loan interest or the loan period does not change. For example,
fixed rates are currently temptingly low and such loans have won some
popularity. When it comes to fixed-rate loans, it is, however, however important
to note that early amortisation and repayment are not always possible without
incurring costs, states Hyttinen.
Housing market to perk up towards year end
The housing market calmed down slightly during the first quarter of 2012.
However, sales varied greatly by location.
- Ordinary homes are still selling well - albeit with a slightly longer time
frame for selling - and more expensive homes are also selling fairly well but
this requires paying attention to pricing, explains Kenneth Sandberg, Vice
President, Estate Agent Services.
The first-quarter best-selling homes through OP Kiinteistökeskus were one-
bedroom and two-bedroom flats whose sales in March were almost at the same level
as a year ago. Sales of detached and terraced houses have, however, made more
moderate progress from the turn of the year but showed growth too. The supply of
housing starts has declined this year, which has somewhat dampened the market as
a whole.
The time frame for selling homes and their prices have not undergone any major
changes over the previous year, although the general economic situation has seen
changes.
- Low financing costs that have been in focus in recent public debate encourage
people to buy real property. Low home loan costs have provoked debate over
rising home prices, but no major changes in prices are expected during the rest
of the year, opines Sandberg.
Sandberg predicts a pickup in housing and property markets towards the year end
because consumers' financial standing is relatively good and consumer confidence
in their financial health shows a slight improvement. Nevertheless, supply will
probably remain great, which may lengthen selling periods.
- When it comes to the economic situation, periods of uncertainty will alternate
with slight optimism. Now it pays to monitor developments in the housing market
because changes in home prices serve as a more sensitive indicator for expected
economic development than the consumer confidence indicator.
For more information, please contact:
Mikko Hyttinen, Senior Vice President, tel. +358 (0)10 252 2211
Kenneth Sandberg, Vice President, Estate Agent Services, tel. +358 (0)10
252 4635
Reijo Heiskanen, Chief Economist, tel. +358 (0)10 252 8354
Conducted by TNS Gallup and commissioned by OP-Pohjola Group, the survey had
2,359 respondents across Finland, forming a representative sample of active
population at the age of 18-69 years. This was the second time when the survey
was conducted.
OP-Pohjola Group is Finland's leading financial services group providing a
unique range of banking, investment and insurance services. The Group's mission
is to promote the sustainable prosperity, well-being and security of its owner-
members, customers and operating regions through its local presence. Its
objective is to offer the best and most versatile package of loyal customer
benefits on the market. OP-Pohjola Group consists of some 200 Group member banks
and the Group's central institution OP-Pohjola Group Central Cooperative with
its subsidiaries and closely related companies, the largest of which is the
listed company Pohjola Bank plc. With a staff of over 13,000, OP-Pohjola Group
posted earnings before tax of EUR 518 million in 2011 and had total assets of
EUR 92 billion on 31 December 2011. The Group has over four million customers.
www.op.fi
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originality of the information contained therein.
Source: Pohjola Pankki Oyj via Thomson Reuters ONE
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Datum: 24.04.2012 - 03:30 Uhr
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