Commercial banks support plan for easier mortgage transfers

Swedbank supports the proposal by the Bank of Estonia and the Financial Supervision Authority to make transferring mortgages from one bank to another easier and more affordable, believing that this would bring them additional customers. SEB considers that easier movement of loans would make the financial sector more flexible and increase competition, and LHV also welcomes the initiative.
Based on an analysis of the banking competition situation, the Bank of Estonia and the Financial Supervision Authority made suggestions that would make transferring mortgages from one bank to another easier.
Among other things, they recommended eliminating or significantly reducing the early termination fee for loan agreements, assigning property valuation from real estate agencies to the banks, removing the obligation to visit a notary, and offering loans linked to Euribor for periods shorter or longer than six months.
Anne Pärgma, the head of mortgage loans at Swedbank, told ERR that all initiatives to enhance competition, especially those that make the interactions between banks and clients faster and easier, are welcome.
"The idea of making it easier and cheaper for customers to transfer their mortgages from one bank to another is welcome. Many more customers would choose us in that case," Pärgma said.
She mentioned that Swedbank receives a lot of praise from its clients and statistics clearly shows that the bank has gained more clients transferring their loans from other banks to Swedbank than the other way around.
She noted that when issuing a new loan, Swedbank always requests an expert valuation from an accepted agency, but for existing loan modifications, it depends on the nature of the change – for reviewing the interest margin, Swedbank does not currently require a property valuation.
LHV charges no fees for loan transfers
Catlin Vatsel, head of the retail financing department at LHV, stated that their loan refinancing is currently more affordable than others' because, as part of a campaign, they cover notary fees for the client and there is also no need to pay a contract fee. Additionally, an internal bank assessment can be used as a valuation act.
However, these conditions are temporary, but according to Vatsel, the Financial Supervision Authority and the Bank of Estonia's initiative to review costs, the notary aspect, and legislation is very positive and would make switching banks much easier for customers. Unlike other banks operating in Estonia, LHV does not charge a penalty for early termination or transfer of a loan agreement.
"Such flexibility is very suitable for clients. A client can always pay back the loan in full or in part without any fees. We see no reason to impose a penalty when clients want to responsibly reduce their loan balance," Vatsel said.
Sille Hallang, head of the retail banking division at SEB, stated that simplifying the mobility of mortgage loans between banks would increase competition among banks, benefiting consumers, lenders and the entire financial market.
"Refinancing mortgages, i.e., transferring them from one bank to another, is possible in Estonia but quite expensive. Therefore, despite obtaining better loan conditions from a competing bank, consumers often refrain from making the change. If the mobility of home loans were more flexible, it would benefit both consumers and banks, thereby strengthening the entire financing sector," Hallang remarked.
SEB: Simpler procedure for switching banks would benefit entire sector
She believes that the change would improve the quality and loan conditions offered in the entire banking sector. For example, in Europe, it has been effective to not fix mortgage conditions for the entire loan period, i.e., 25 years, but to do so in three- to five-year steps.
"A change in the monthly mortgage payment by tens of euros allows saving thousands of euros over the loan period, but the cost of refinancing should not 'eat away' at this gain," Hallang said.
SEB also considers the proposal to review the role of notaries and the necessity of property valuation in mortgage financing reasonable.
"As a bank, we already offer clients alternative interest rates such as three, six, and 12-month Euribor, or the option to fix the base interest rate for a longer period, so there is a choice. We generally do not ask for a contract fee for refinancing a loan, or it is symbolic, compared to the bank's workload in reprocessing the loan agreement and collateral," added Hallang.
She mentioned that making it easier to switch banks would be important for the entire financial sector as it would also encourage innovation in other financial services.
Flexibility in the loan market would be commercially beneficial for SEB, Hallang explained, because typically foreign banks like SEB, which have better access to cheaper funds, have kept loan margins low.
In addition, SEB is looking forward to the creation of a positive credit registry, which has been long-awaited, and the easing of advertising restrictions to make the loan market more efficient.
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Editor: Marcus Turovski