Banks, Estonia, Financial Services, Real Estate

Currently things are simple, the newspaper writes. When taking a home loan, the client gets an interest payment that consists of Euribor that changes every 6 months and a personal loan margin.

According to the new system, the client can choose to peg the interest rate to the six months Euribor or the bank’s own home loan base interest rate. The bank’s own base interest rate consists of six months Euribor and the gap between interest rates of 7-year bonds corresponding to Estonia’s state rating and seven-year euro interest swap. In both cases, the personal margin is added. At boom times this was around 0.5%, now around 2.5%. The new rate allegedly includes a lower personal margin.

Advisors consulting the newspaper estimated that in comparison to previous interest rates, the new system will push the risks related to deteriorating in the economic environment upon loan customers. Loans granted in 2006 or 2007 at a very low price have become expensive for banks now and banks are trying to get out of the deadlock. One possibility is to make the former favourable interest rate more expensive. In Swedbank, that can happen now when people want a payment holiday or an extra loan.

Another problem concerns informing the customers of the change. Yesterday the Financial Supervisory Authority declared that banks will have to manage to explain to its loan customers how their interest rates will be calculated. Although the authority did not name Swedbank, making the statement right before the new product’s ad campaign is launched leaves no doubt that the authority is concerned about the activities of the state’s largest bank.