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Housing loan costs dropping fast—for the right customers

Tough competition between banks has forced down the cost of borrowing to finance a new home, according to one leading figure in the sector. Hypo’s managing Director Ari Pauna says that margins on home loans could hit 0.50 percent next year.

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Banks are offering great deals on new mortgages, so long as they have plenty of cash and are buying property in the right areas. That’s according to the Managing Director of housing finance institution Hypo, Ari Pauna.

Margins on new loans have recently been around 0.75 to 0.85 percent on top of the reference rate, for solvent customers buying in the capital city region or Tampere.

“Next year we could get even closer to 0.5 percent,” writes Pauna. “It’s pointless to claim otherwise.”

Banks do sometimes try to open negotiations with even their better customers at levels above 1 percent. According to Pauna, that’s just a ploy.

“It’s clear that talking about housing loan margins of more than a percentage point is a little silly right now,” writes Pauna.

The margin has a big impact on the size of monthly payments on housing loans. The total interest rate is composed of the reference rate, which is usually the 12 or 6 month Euribor rate, and the margin. With reference rates now particularly low (the 12 month Euribor is currently 0.16 percent), the majority of interest payments are typically made up of the margin charged by banks.

Banks have managed this falling revenue relatively well, with profits for the sector topping one billion euros last year thanks to insurance sales, higher service charges and staff lay-offs.

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