Matúš Filo, a mortgage adviser from Broker Service Group Slovakia a.s., talked about the fact that interest rates are historically the lowest and banks are ahead in the one that will offer even more advantageous conditions. It turns out that the mortgage market is entering an interesting phase, when it is possible to obtain attractive fixations, refinance up to 100% of the property value, and if you go to a competing bank, they will be happy to repay the fine from your original bank.
What interesting things have happened in the mortgage market in recent months?
It has been long assumed that interest rates should start to rise, but this has not yet materialized. Paradoxically, the mortgage market is moving in the opposite direction. Interestingly, interest rates have fallen sharply and are currently historically low. Currently, the lowest interest rate on the market is 0.6%, while no additional condition arises for the loan applicant other than the establishment of a personal account.
How do banks approach the length of the fixation period?
With a 3-year fixation, it is possible to obtain a loan with the historically lowest interest rate, but banks also offer very attractive long-term fixations. For example, an unnamed bank launched a campaign for a 10-year fixation with an interest rate of 0.99%. It recorded so many requests received that the campaign had to be suspended.
Are you not attracted by this interesting opportunity?
When I learned about the possibility of obtaining this type of product, of course, I applied. I plan to use this option, because a 10-year fixation with an interest rate of 0.99% is a very good opportunity.
How are the more conservative banks?
Banks are currently ahead of their bids and trying to attract clients with something new, interesting. It is possible to obtain e.g. long-term fixation for up to 15 years or an interest rate from 0.6%.
So we can talk about a period of the mortgage paradox, when banks under the measures of July 2018 on the one hand tighten the conditions necessary to obtain a loan, on the other hand favor interest rates and extend the fixation period so that the client actively resolves a new loan or refinancing the original.
If I should summarize it as concisely as possible, we record a situation where banks indirectly force clients to take out mortgages with their mortgage products. With an interest rate of 0.6% and comparable offers, it is not possible otherwise. People are actively applying for mortgages. As a rule, they can finance 20% of the property price from their own resources, or they finance this part of the purchase price with a consumer loan, for the remaining 80% they use the opportunity to obtain a loan with a low interest rate.
What does it look like with mortgage financing in the residential market of new buildings compared to the previous period?
New clients and loan applicants, who are currently dealing with the purchase of real estate, are actively using the current offer of banks. They are applying for a loan approval, in order to be guaranteed with the current favorable financing conditions. We record the problem with projects that were approved earlier and in which clients already have their mortgage financing for the purchase of real estate approved. We are currently sending approved loan applications quickly for pre-approval or requesting a pre-approval of the interest rate after the loan has been drawn. Given the current situation, rates approved half a year or three quarters of a year ago are no longer of interests to the client. It usually happens, that a client who got a loan approved with an interest rate of 1.29% six months ago calls, simply decided not to take the loan.
When a client who already has an approved interest rate and fixation period comes to see you, can the bank change the length of the fixation period in addition to the interest rate?
Banks usually knows, how to change the fixation period. At the same time, they can match the interest rates of competing banks. Mortgage refinancing is currently on the market. The bank usually does not want to lose a client and tries to meet his needs, adjust the interest rate, or change the fixation of the interest rate.
With regard to the changes adopted in July 2018 in connection with the tightening of the criteria for granting loans, is there anything you could recommend to clients?
We have been operating in this direction for a longer period without significant change, but the National Bank of Slovakia is again preparing tighten of conditions. It cannot be said that 90% of the funding has disappeared, some clients are still receiving it. It's just harder. In this case, clients must expect a higher interest rate. 90% of the funding is currently being paid extra. With 80% financing, banks are competing with interest rates. In this category, you can get a loan without any problems.
However, the information that may be interesting, is that if the client currently obtains only 80% real estate financing with a mortgage loan and co-finances the remaining 20% with a consumer or construction loan, we can ensure consolidation of these loans up to 100% of the property value after some time.
Is there a condition that obliges the client to repay a mortgage loan for a period of time in order to be able to afford to apply to the bank for a refinancing loan, under which he would obtain a refinancing loan of 100% of the value of the property?
Each bank has different conditions. In general, I would summarize that the client should pay 10-14 installments. Subsequently, we can create an opportunity for the client to obtain a refinancing loan with a lower interest rate, or. longer fixation up to 100% of the purchase price of the property. It should be noted that in refinancing loans, we are not limited by the percentage limits of the purchase price, as well as the rates. It is important for the client to obtain a basic mortgage loan. Subsequently, as part of refinancing loans, we can provide them with a reduction in the interest rate, or consolidation of several liabilities up to 100% of the property value. It also confirms to us that if the bank itself refuses to consolidate the client's finances, the client can go to a competing bank. At the same time, bank can repay the penalty for early repayment of the loan at the original bank. At the same time, the practice also shows that once a client has obtained a loan from a bank and repays it regularly, bank will ask for advantageous conditions, which are currently offered on the market by another banking entity. In most cases, the bank will settle the terms of that competing bank.
Which allows the refinancing loan to provide clients with financing up to 100% of the property value, on more favorable terms than a standard mortgage loan, which limits the client in most cases to 80%, a maximum of 90% of the property value.
A mortgage loan for the purchase and reconstruction of real estate is governed by the Act on Housing Loans, where the restrictions of the National Bank of Slovakia apply. In this case, the limits are set at the level of 80-90% of the property value, no more. These restrictions do not apply to a refinancing loan and banks do not have their hands tied.
What would you recommend to clients in the end?
Dear clients, be sure to look at the parameters of your mortgage. They can also be adjusted during the fixation period. Selected banks will even reimburse you for the early repayment fee. And those who are planning to take out a new mortgage, do so as soon as possible due to a possible, announced tightening of conditions.