The Bank of Estonia (Eesti Pank) recently said that, for mortgage holders, switching between banks should be made easier and more affordable; one of the saving points mentioned was the elimination of the obligation to go to attend a notary during this process.

Speaking to ETV morning show "Terevisioon," Merle Saar-Johanson (pictured), chair of the Chamber of Notaries (Notarite koda) said: "I personally think that this proposal is not a good one, whatsoever. It serves to fracture the legal system, is harmful, leaves the consumer unprotected, and can give rise to new legal disputes. It also actually does not have [the desired] effect either, it will not in any way rejuvenate the loans market."

"When it comes to the costs associated with refinancing a loan, Finantsinspektsioon (the Estonian financial services authority – ed.) provided an example whereby a loan worth €100,000 would be refinanced. Here I will refer to the fact that a notary's fees are €60 from this total cost, when the total cost would be €3,000. In other words, this cost comes to only 2 percent going to the notary," Saar-Johanson went on.

"The financial supervision authority claimed that the notary only changes the mortgagee's name in the land register (Kinnistusraamat) and that's it. However, in fact, that's not how it is at all. What does the notary do? First of all, they check who is required to sign the transaction, be it a spouse, a cohabitant, or whether they both have to to come, and then [the notary] will advise those spouses or life partners who have come to make the transaction," she continued.

Saar-Johanson said that the notary also passes this information on to the bank. "We determine whether this property is a jointly or separately held property, whether you have to do this together, alone. Perhaps a bank could be the one really to determine this, but another aspect is our advisory role, which is much more important," she continued.

"When transferring a loan from one bank to another, an agreement gets made as to which loan the mortgage is a guarantee on. Does it guarantee only one loan as of now, yet there is also the possibility to agree otherwise, perhaps in the way that the mortgage guarantees all loans taken in future. This is often what customers want, when they come to the notary. It is our role to explain all the risks involved in concluding a guarantee like this. Then when they hear that from us, they often change their minds, and conclude far safer guarantee agreements than they would have been made without the use of a notary."

Host Katrin Viirpalu asked if all this could not already get carried out when a person takes out a loan.

Saar-Johanson answered: "The current practice is one where you take one loan from one bank and then move to another bank with the same loan, but instead, when you leave one bank, you terminate that loan agreement with that bank, then you sign a new loan agreement, and a completely new guarantee agreement, with the new bank."

Saar-Johanson also provided an example of what can happen if the notary is no longer there to advise the consumer on this issue.

"The client will be lose their legal assistance. For instance, the client amy go to the notary, and the bank has explained that if we sign the guarantee agreement then it could be written into the contract in such a way that not only the one loan you are taking out today, to purchase a home, is guaranteed, but also that we could put in place a future clause in the contract, whereby any future loans you may take out are also guaranteed."

"For example, if you repay the loan in question now but you want to take a new loan in the future; if we have the above type of clause in the contract, then you no longer have to go to the notary and enter into any agreements at all. You simply approach the bank and ask for a new loan. We will give you a new loan [the bank says], this is cheap, convenient, and fast. This all sounds good. But if you look beyond things, it actually isn't all that good," the notary went on.

"For example, today you buy a home, you take out a loan, you put in the same future clause. Time passes, and you end up wanting to buy another property, for example, an apartment, for investment purposes. You take out a loan to that end, and next you agree that this new property will also goes against the [old] property, as collateral, but in fact the original real estate, your home, also represents collateral on the loan for this new real estate, as there was this broad collateral agreement whereby all future loans were guaranteed."

"But you hadn't taken that into account, while if you then have a hard time with this second loan, then the bank can require you to sell not one, but two properties, to cover the debt. However, if someone has explained all that to you, you most likely would not want to sign the guarantee agreement for future loans," she added.

Johanson said that although while would affect notaries' revenues too, the more hazardous impacts would fall on the consumer.

The Bank of Estonia and Finantsinspektsioon announced at the end of February that transferring a home loan from one bank to another could become easier and more affordable if the fee for early termination of a loan agreement were abolished, and if other options were offered in addition to the six-month Euribor-linked loan, as well as removing the requirement to go to a notary.

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