SEB allegedly making home loan terms' changes when taking grace period

SEB head office in Tallinn.
SEB head office in Tallinn. Source: Siim Lõvi/ERR

The uptick in loan grace periods offered by banks in the wake of the coronavirus pandemic has allegedly led to changes in interest calculation for those taking up these grace periods, according to ERR's online news in Estonian.

The interest rate had generally been six month's Euro Interbank Offered Rate (Euribor) rate, plus a percentage per annum, but according to one SEB customer who requested a grace period, the bank wanted to include in the agreement a negative Euribor equivalent to margin.

With the appearance of the coronavirus pandemic and the government's emergency measures, interest in a period of grace has seen an increase. Larger banks say they are not asking for any premium or imposing additional conditions on people seeking credit in this way.

A source told ERR that SEB's statement was not accurate, however.

"They try to give the impression of getting customers back because there is a grace period without a contract fee, but they do not mention the fact that many people want to change one very important part of the contract, which is interest calculation," they said.

The Euribor has been negative for a long period, but banks operating in Estonia have generally set the interest rate floor at zero on all loan agreements with an interest rate on six-month Euribor. 

For example, Swedbank loan agreements included this provision from 2015 onwards. As a result, in recent years, Estonian customers who have signed a loan agreement have not benefited from the European Central Bank's (ECB) interest rate policy.

Earlier loan agreements do not have such a floor, which means that they have a six-month Euribor plus a percentage per annum, which in the case of a negative Euribor brings a financial gain. Furthermore, a SEB client loan agreement with ERR dates back to a time when the contracts did not include such a floor.

"However, it is stated in the annex to the contract that if the value of the Euribor is negative, the interest shall be equal to the margin. So, in fact, for a large number of homeowners who have to take a grace period in the current situation, the loan payment situation will change very seriously after the grace period finishes," ERR's source said.

The source added that, as a borrower, they had taken the risk that the Euribor could rise and fall, and that this was the reason why, for example, in 2008, their family had to pay more than twice that interest rate. If the bank did not anticipate such a large drop in the Euribor at that time, it is not fair now to take advantage of crisis situations for homeowners simply before the act, the source said.

SEB response: If period of grace does not lead to change in term of contract, neither will interest rates change

Julia Piilmann, Head of Communications at SEB, said the bank was unable to comment on the specific case, but advised the client to contact a loan expert who had processed the application to clarify the circumstances.

SEB allows coronavirus-affected clients to complete a grace period for home and mortgage and small loan repayments without a contract fee, Piilmann said.

"If the period of grace does not lead to a change in the term of the contract and other terms and conditions, neither will the loan interest rate or other terms be changed," she went on.

According to Anne Pärgma, Head of Housing Loans at Swedbank, the bank will not change the other terms of their clients' loan agreements in connection with the grace period. If the contract did not include a negative Euribor clause, then Pärgma said it would not be included in connection with the grace period.

The Euribor is a daily reference rate based on the averaged interest rates which Eurozone banks offer on unsecured loans o other banks in the euro wholesale money market.

There are one-week, one-month, three-month, six-month and 12-month rates. All of these are negative at the time of writing; the Euribor one week is -0.506 percent and the 12 month rate stands at -0.191 percent.

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Editor: Andrew Whyte

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