Illustrative stock photo (source: SME)
Come and get a cheaper loan is the main message of numerous banking ads. Bold statements about the most favourable interest rates follow the changes to the law on home loans and also good conditions in the financial markets resulting from current policy of the European Central Bank, analysts agree.
The changes to the home loans, which came into effect on March 21, introduce lower fines for clients who want to refinance their mortgage, dropping from some 5 percent to below 1 percent.
“With such change people are able to decrease their interest rates on mortgages immediately,” said Maroš Ovčiark, executive director of the Finančný Kompas website dedicated to the comparison of banking products, as quoted by the TASR newswire, “they do not need to wait for the end of the fixed period when they can refinance it free of charge.”
Though the changes may increase the number of clients changing the banks and picking advantageous mortgages, analysts warn that not all offers promoted in advertisements are true and the final interest rate may be higher.
Better conditions for clients
Paying off an old mortgage with a new, cheaper one will not cost thousands of euros any more, as banks can charge a fee of only up to 1 percent for a mortgage repaid early. Originally the fee might have been as high as 5 percent.
Thus when paying off a mortgage in the amount of €50,000, now the fee cannot be higher than €500. Clients were charged between €1,000-3,500 for the equivalent amount until March 18, the Pravda daily wrote.
Moreover, the clients will be able to pay one extra instalment amounting to 20 percent of the borrowed sum once per a year, free of charge, the SITA newswire reported.
Moreover, clients will get more detailed information about their mortgage and the instalments already before signing the contract or if they want to pay it off with another loan. They will also receive more information about the type of interest rate, the total amount of the mortgage or potential future costs which are not included in the final sum, TASR wrote.
The amendment also enables the clients to terminate the agreement without stating the reason within 14 days after signing the deal.
The new rules should also contribute to better evaluation of a client’s solvency. The banks should, first of all, take into consideration the ability of clients to pay off their loan and the external factors which might impact this ability.
They also modify conditions for providing a loan in foreign currency, complaints and reclamations, and also conditions for out-of-court settlement of disputes. The changes will also impact the supervision over providing the home loans, TASR reported.
Clients should be careful
The more favourable conditions and current interest rates create space for clients to take a new mortgage or to refinance an old one. The annual interest rates on mortgages on the Slovak financial market currently hover around 1.5 percent.
“It would be reasonable for people to move their mortgages to cheaper banks if their current annual interest rate exceeds 2.5 percent and fixation of their interest rate will lapse after more than one and half a years,” said Ovčarik, as cited by Pravda.
Several banks in Slovakia have launched campaigns in response to these trends, to either keep their existing clients or lure new ones.
People however should be careful when calculating the new instalments as not every bank employee or financial mediator takes into consideration all fees, warns Miroslava Mizeráková, member of the board of directors at Hypocentrum.
“They for example compare only the actual and new instalment, but they do not take account of the fine for early repayment and the costs linked to moving the loan,” Mizeráková told The Slovak Spectator.
They also do not warn the clients that they need to fulfil certain conditions, like open new account in the bank, insure the loan or take on additional products, which in fact increases the price of the loan. The refinancing is not advantageous in case of loans for young people when they receive a contribution from the state, Mizeráková added.
The clients in some banks may also pay additional fees for making new expert report or going to the cadastre office, Slavomír Ruman from Allianz – Slovenská Poisťovňa told SITA.
“Sometimes all clients need to do is to come to the bank and ask for re-evaluating the interest rate, but this is not always free of charge – the clients need to compare the saving and the fee,” Mizeráková said.
Conditions may change soon
Analysts also warn that banks will try to compensate for losses resulting from the new rules.
Peter Világi, senior analyst of Fincentrum, said that the increased interest in refinancing has resulted in higher interest rates abroad. One of the ways banks may respond is the limitation of offers with longer fixed periods or increasing the fees connected to home loans, he told SITA.
This is already happening, says Mizeráková. Though some banks currently do not ask for fee for providing the loan, one bank has already increased it and others may follow in upcoming months. In about half a year the conditions may be stricter and there can be more limitations when asking for a loan, she expects.
“Any change made against banks in order to favour or protect the client always turns against the client,” Pavel Škriniar of Finančná Hitparáda website told TASR. “The initiative to change the payment policy should come from banks and not via state regulations.”
Banks offer different conditions
The Slovak Spectator addressed three banks in Slovakia, asking them about the current conditions for mortgages.
Tatra Banka
Tatra Banka does not require the clients to take any additional products or services if they want to obtain a good interest rate. The final amount depends on several parameters and also the personal evaluation of the clients, said spokeswoman Zuzana Povodová.
The clients usually need to bring an ID card, confirmation of income in case they are self-employed or receive salary from abroad, the expert report and also other documents like purchase contract or building permit. In case of foreigners, the bank can ask for a statement from the credit register of their home country, explained Povodová.
If clients want to take a completely new loan, the bank asks for an expert report no older than 12 months. In case of refinancing, the report cannot be older than five years.
Slovenská Sporiteľňa
At Slovenská Sporiteľňa (SLSP), the final interest rate depends on several factors, like when the refinancing takes place, the client’s solvency, the value of the property, or the client’s existing products with the bank. The clients who have an account in the bank and insure their loan can receive even more favourable interest rate, spokeswoman Marta Cesnaková said.
One of the documents clients need to bring when asking for refinancing is an expert report, not older than six years. In case it is, the bank secures a new opinion. Clients do not pay any refinancing fee, Cesnaková said.
Every applicant also needs to prove he or she is able to pay off the loan. When assessing solvency, they look at income, spending on household, education, and ability to pay off other loans, Cesnaková explained.
VÚB
VÚB bank sets some conditions for its clients to receive a low interest rate.
One of them is to ask for a contribution from a bank, which is provided for loans with more than three-year fixed rate. Another condition is the active use of a bank account, which means that clients receive money every month. The clients also need to promise they will not pay off the loan or make an extra instalment during the fixed period, except for the cases allowed by the law, otherwise they will lose the right for contribution, Angelika Farkašová, head of the loans department at VÚB said.
This means that the clients can obtain a loan with interest rate at 1.49 percent in case of a three- or four-year fixation or at 1.69 percent in case of five-year fixation if they ask for a loyalty discount and have an active account in VÚB.
The bank offers additional services, which do not modify the interest rate, but can make the bank repay the costs on evaluating the property or inscribing the property into cadastre office’s register. To get them, it is necessary to insure the loan or the property, Farkašová said.
The applicants for a loan in VÚB bank need to bring their identification card and documents related to the property. If they have ordinary employment agreement, they do not need to bring a document confirming their income as the bank usually checks it at the state-run social insurer Sociálna Poisťovňa. Self-employed applicants need to bring a tax return for the previous year, certified by the tax office, explained Farkašová.
The conditions for foreigners with permanent residency in Slovakia are the same as for Slovaks. Those without permanent residency are divided into two groups: with income from Slovakia and income from abroad. The conditions for the former are the same as for Slovaks, while for the latter are more restricted: they receive the sum amounting only to 70 percent of the property and the maximum payment period is 20 years.
