This would allow home-buyers to negotiate better loan terms and introduce more competitive conditions in the home loans market, the FSA says.

Siim Tammer, FSA board member, noted that at present, on a transaction of a loan worth €150,000, transferring from one bank to another costs several hundred euros as state and other fees.

"But in the broader perspective, it should get easier to transfer a loan to another bank more cheaply," Tammer said.

"When banks make their offers, they actually offer better loan conditions to clients, so now that we have started looking at what these additional costs are, incurred when transferring a loan, we can conclude that it is not reasonable to make such offers from the point of view of competition. A deal like this just doesn't pay off financially," Tammer went on. 

The FSA addressed the Ministry of Justice making the same proposal, to find ways to cut costs when transferring a home loan to another bank, i.e. the costs of refinancing a housing loan.

The address refers to the home loans and customer banking market in Estonia as an oligopoly, ie. with a small number of market payers, making it important that costs relating to switching banks are not at a level which inhibits the efficient functioning of the market.

Under current law, such transfers must be notarized, as the state requires a notary to verify that the transaction is legally correct; this does not have to remain the case, Tammer added.

Tammer cited the example of Finland and Sweden, where notarization is not required; in the latter country, no state fee is charged on switching banks, he said.

The banks themselves could be made responsible for the due diligence on switching banks, rather than a notary.

As lender, banks would have an incentive to make sure all details were present and correct, he added.

Ministry of Justice spokesperson Elisabet Mast said the ministry has not yet formed a position on the proposal, which has only recently been received.

Jaak Tõrs, head of the financial stability department at the Bank of Estonia (Eesti Pank) concurred that the transfer of home loans from one bank to another can be organized much more efficiently than is currently the case in Estonia.

Calculating interest rates using the three-month Euro Interbank Offered Rate. (Euribor) instead of the six-month Euribor, and having a fixed rate for, for instance three- or five-year terms, are other ways of making the system more competitive for borrowers, he added.

The central bank and the FSA are due to formulate their concrete plan on improving competition on the credit market in Estonia by the end of March.

Estonia, along with Latvia and Lithuania, has the highest home loan interest rates in Europe, while within Estonia itself mortgage rates are at a 14-year high.

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