Banks to Tighten Loan Conditions
In July, loan conditions will be tightened considerably as banks must adopt stricter methods for evaluating the loan applicants' solvency.
In addition, banks must begin informing their clients of the dangers of taking out a loan and stop issuing loans based solely on security. The new regulations imposed by the Financial Supervision Authority also state that in order to avoid a conflict of interests, financial institutions are no longer allowed to award performance pay to their employees based on the number of loans issued, reported ETV.
"By now, the banks and probably also the customers have reached the understanding that performance pay is not something that is guaranteed, but is instead directly dependent on sales. So, it might disappear when the market drops or some kind of changes are taking place," explained Riho Unt, Chairman of the Board of the Estonian Banking Association.
Beginning from July 1, banks must start evaluating the loan applicants' own solvency first and foremost as a substantial security on its own will no longer be enough to guarantee a loan.
The situation will also become more complicated for people wishing to switch homes. If the loan balance is big compared to the value of the property, the bank will probably advise the client to sell the existing home before assuming a new financial obligation.
Private loans took off again last autumn, and despite a rather quiet start to the year, the upward trend continues. However, the future market behavior will depend to a great degree on the fluctuations of the Euribor rate.
"The European Central Bank raises the Euribor rate to combat the inflation, which has shot up. It will probably rise some more. It is difficult to say by how much. According to the year-end predictions, the interest rate could end up at 1.75 percent," said Unt.
Despite the new regulations introduced by the Financial Supervision Authority, the Consumer Protection Board still advises people to read their loan contracts carefully and think twice about signing them.
"The loan is taken out by the consumer, or the client, and nobody else, and the client is still the one who has to pay it back. These new regulations will in no way make the client's life easier," said Consumer Protection Board Director Andres Sooniste.
Sigrid Maasen