Mortgage loans begin returning to life

BETTER prospects for a revival in Slovakia’s economy and low real estate prices have injected new energy into the domestic mortgage market. Banks are luring new clients with interest rates below 4 percent and hope that 2010 will be a much better year than 2009, when the volume of new mortgages fell by as much as 60 percent.

It's now easier to get a mortgage. It's now easier to get a mortgage. (Source: SME)

BETTER prospects for a revival in Slovakia’s economy and low real estate prices have injected new energy into the domestic mortgage market. Banks are luring new clients with interest rates below 4 percent and hope that 2010 will be a much better year than 2009, when the volume of new mortgages fell by as much as 60 percent.

“For the time being, mortgage terms are relatively favourable,” Alexander Kmeť, mortgage broker at Hypocentrum, told The Slovak Spectator. “Banks have moderately loosened the tightened criteria which were in effect during 2009. Certain products are again more available, for example 100-percent mortgages and mortgages for foreigners.”

Kmeť characterises banks’ behaviour as ‘rational’ given the current situation on the mortgage market.

“Banks are providing mortgages in larger amounts than during the ‘crisis’ year of 2009, even though still not at the level of the ‘golden’ year of 2008,” he said, adding that the current marketing activities of banks show their greater willingness to provide mortgages. But he added that banks are more carefully scrutinising mortgage applications and they are also looking more carefully at the real estate used as collateral, as well as other conditions such as the applicant’s income.

VÚB, the bank which dominates the domestic mortgage market, confirms that the market is in motion again.

“This is because of the drop in real estate prices on one hand and by interest rates on mortgages at bottom levels on the second hand,” Alena Walterová, the spokesperson of VÚB, told The Slovak Spectator, adding that banks have also returned to 100-percent financing for apartment purchases.

Slovenská Sporiteľňa also confirmed a revival in mortgage loans.

“After stabilisation at the end of 2009, the mortgage market revived during the first quarter of 2010,” Mária Valachyová, an analyst with Slovenská Sporiteľňa, told The Slovak Spectator. “Banks provided almost 20 percent more housing loans than one year earlier. We expect that a similar development will continue in the months to come.”

Along with the drop in real estate prices and record low interest rates she also mentioned further revival in Slovakia’s economy as a precondition for continuation in the growth of mortgage loans.

OTP Banka said that it is also optimistic because loan customers are not as afraid of becoming unemployed as they were last year. The bank views the current period as the best time for homebuyers to take out a mortgage.

But Tatra Banka does not totally share this optimism.

“Data from the National Bank of Slovakia about newly-provided mortgages does not indicate a visible increase in interest for this type of loan,” Boris Fojtík, a Tatra Banka analyst, told The Slovak Spectator. “It is instead possible to speak about a stabilisation in the volume of provided loans over the last few months. We expect that conditions for providing mortgage loans will relax moderately in the upcoming time period, but that simultaneously the ceiling will remain unchanged for the loan-to-value ratio.”

2009 – the black year

Banks in Slovakia reported a steep drop in the number of closed mortgages in 2009 as well as in their overall loan volume. According to data from the National Bank of Slovakia, the volume of new mortgages shrank by almost 60 percent in 2009, compared to an increase of almost 79 percent in 2007 and growth of 20 percent in 2008, according to the TASR newswire.

Eva Sadovská, an analyst with Poštová Banka, explained that because of people’s reluctance to assume an additional burden in the form of a mortgage, banks focused more on providing other types of loans.

“New volumes of housing loans moved from classic-style mortgages into other loans, for example consumer loans,” she said, as cited by TASR.

VÚB reported a drop of 50 percent in both the number as well as the volume of mortgage loans it closed last year compared with its very successful year of 2008. According to Tatra Banka spokesperson Boris Gandel, his bank provided 2,952 mortgages with an aggregate volume of €176.81 million in 2009, compared with 7,154 mortgages worth €491.27 million in 2008. OTP Banka also reported a decline in its number and volume of mortgages.

While the volume of closed mortgage loans decreased in both January and February 2010, it rose by €459,000 in March to a level of €3.794 billion, according to Slovakia’s central bank. VÚB kept its leading position with a 39.04-percent share of classic-style mortgages and Tatra Banka accounted for the second biggest share, at 25.78 percent.

2010 revival?

According to Kmeť of Hypocentrum, the first quarter of 2010 indicates a moderate increase in consumers interested in mortgages. He ascribes this to the reviving real estate market and less fear of job loss.

“Development of the mortgage market will depend on some additional factors – the policies of banks, development of inflation in the eurozone and the subsequent development of EURIBOR, as well as developments in the labour and real estate markets,” said Kmeť, adding that with certain simplification it is possible to expect that if the real estate market remains stable, banks may gradually return to 100-percent financial loans on real estate. Hypocentrum does not expect any tightening of criteria for evaluating an applicant or for approving a loan.

Based on the upward trend and figures for the first four months of 2010, VÚB expects that the demand for mortgages will grow this year. Other banks are also optimistic regarding mortgages and housing loans in general. OTP Banka, according to its spokesperson Tatiana Jonáková, has thus far registered an increase of over 260 percent in the initiation of new loans compared with last year, leading to a hope that the bank will record an increase in the number of mortgages as well as their volume for all of 2010. Tatra Banka expects higher growth in housing loans this year compared with 2009. According to Fojtík, Tatra Banka estimates this year’s growth in the entire category of housing loans to be above 10 percent.

Interest rates

Interest rates on mortgages provided by individual banks are more or less at similar levels while some banks are reducing them temporarily or are offering some special discounts, according to Kmeť of Hypocentrum. In general, an increase in interest rates is expected – but this may not happen this year.

In early April, the lowest interest rate at which a client could secure a mortgage started below 4 percent. Compared with the pre-crisis times, this means interest rates are at least 3 percentage points lower and that the associated monthly payment is significantly less, Hospodárske Noviny daily wrote.

“As long as possible, banks will try to keep the current terms or even make them more attractive since an opposite tendency would not help increase interest by potential clients very much,” said Kmeť.

The current mortgage interest rates are below the pre-crisis level especially because of the significant drop in EURIBOR, the European inter-bank lending rate, said Kmeť. Moreover, Kmeť added that banks have also gradually reduced risk charges and that the lowest rates are being offered by banks with special marketing activities or by banks with a healthy portfolio of customers.

Mortgage loans vary by region

Consumer interest in mortgage loans more or less mimics the level of economic development of Slovakia’s regions and the local unemployment rate, making Bratislava Region the leader in mortgage loans, accounting for almost one-third of all mortgages closed last year, according to the Sme daily.

VÚB receives the highest levels of interest for mortgages from Bratislava, Trenčín and Košice Regions while Prešov Region has the lowest level of interest. Tatra Banka unambiguously sees Bratislava Region as having the highest level of interest followed, after a gap, by Trnava Region. In other regions, consumer interest in mortgages is more or less balanced but Košice Region has the least interest, according to Gandel of Tatra Banka. SLSP also reports the highest consumer interest in Bratislava Region, followed by Žilina and Košice Regions based on Q1 2010 data. The Prešov and Trnava Regions show the least interest in mortgages, according to Štefan Frimmer, the SLSP spokesperson.

Hypocentrum, which operates primarily in Bratislava and its vicinity, reported a drop in the average volume of mortgages among its clients as high as 50 percent over 2009.

“But the fact that we dealt with many fewer mortgages for new buildings, which have a higher purchase price than for older buildings and partially because we mediated fewer loans for foreign clients, also had a role,” said Kmeť. “The drop in real estate prices in Slovakia was also significantly reflected in a lower average mortgage.”

The average mortgage loan by VÚB was around €36,000, with Bratislava Region having the highest loan values, an average mortgage being about €71,000. Loans in the Poprad area had the lowest values with the average mortgage being €31,000, according to Walterová.

Mortgages in default

The economic crisis and its associated impacts worsened payment discipline among mortgage holders. In 2009, the average ratio of defaulted mortgages was about 4 percent, according to VÚB.

“Here it is necessary to say that clients of VÚB have good payment discipline,” said Walterová, adding that for VÚB alone this indicator stood at 1 percent.

Tatra Banka, according to Gandel, also sees the payment discipline of its clients as good when it has been able to keep its share of failed loans below the average level of the entire Slovak banking sector.

SLSP registered an increase in the number of bad loans in December 2009 compared with the previous year but said that this increase was only slight.

“People have a bigger motivation to pay back housing loans because many mortgage holders live in the real estate through which they guaranteed the loan,” said Frimmer, adding that “repayment of loans by private individuals is strongly connected with developments in unemployment.”

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