Mortgage rates sink to historic low

IN THE MIDST of a wide assortment of gloomy news for Slovak consumers who have been told by their government that they and their country are now in a belt-tightening mode, the country’s mortgage loan market offered some good news for those planning to buy real estate: interest rates are at a historic low.

IN THE MIDST of a wide assortment of gloomy news for Slovak consumers who have been told by their government that they and their country are now in a belt-tightening mode, the country’s mortgage loan market offered some good news for those planning to buy real estate: interest rates are at a historic low.

While journalists and others are tempted to compare mortgage interest rates in Slovakia with those in other countries of the eurozone and conclude that rates here are still among the highest, market analysts warn that such hasty observations may be off the mark.

According Vladimír Vaňo, chief analyst with Volksbank, there are substantial differences in evaluation of risk and the structure of loan portfolios within the countries of the eurozone.

The market situation for those seeking home loans is relatively advantageous right now in Slovakia, Miroslava Mizeráková of Hypocentrum, a mortgage advisory company, told The Slovak Spectator.

Between now and the end of the year several banks are reducing their mortgage interest rates or are offering other kinds of discounts.

Mizeráková said these offers have time limits but present a good opportunity for those who have been considering purchasing real estate and taking out a mortgage loan.

The mortgage interest rates offered by lenders are hovering around 3.7 percent and market watchers say they do not expect them to sink further. While the country’s Finance Ministry says it is not happy with the current level of mortgage interest rates it has not announced any specific remedial actions, the Sme daily wrote.

“We consider it a problem that mortgage loans in Slovakia are among the most expensive in the whole eurozone and we want to take a look,” Mikloš said, as quoted by Sme.

There is no legal norm that instructs banks how to set their mortgage interest rates, Mizeráková said. She noted that banks consider several factors when determining their interest rates, such as the level of failed loans, their costs in acquiring funds from which to offer mortgage loans, and other risk fees and related expenses. She also said that mortgage markets are very country-specific, with multiple factors influencing the actual setting of interest rates.

Vaňo said that simply comparing the average mortgage interest rates among countries of the eurozone with Slovakia is not appropriate, arguing that putting interest rates side by side or calculating an average fails to consider “the different situations in the labour markets or the different structures of creditworthiness of clients, different rates of indebtedness, different scales of loan risks not only in relation to the lender but also to the acquired real estate”.

Mizeráková said that the differential in interest rates in Slovakia might be attributable to certain banks simply not being interested in increasing their volume of mortgage loans in a particular time period and thus not making any special efforts to attract customers for these types of loans.

She added that bank customers do not have any direct influence on setting mortgage interest rates and are in the situation that they either take a loan under the available conditions or do not take a loan at all.

“For example, our company has encountered negative responses while arranging mortgages for foreign clients who were offered completely different rates by their ‘domestic’ banks than those offered by banks in Slovakia,” Mizeráková told The Slovak Spectator. “However, one should be aware that a foreign client is riskier for a [domestic] bank and it is more likely that if there are difficulties in paying the loan, the client might stop communicating with the bank and be less interested in the fate of their real estate, especially if the mortgage loan was taken to purchase speculative real estate.”

Mizeráková explained that the term speculative real estate refers to a situation between 2006 and 2008 when foreigners were purchasing real estate in Slovakia with the expectation that after a certain time of renting the property they would sell it, presumably at a significant profit.

She suggested that some banks ended up having poor experiences with this particular scenario and that this risk is reflected in the mortgage interest rate.

Market analysts say that the availability of loans and the volume of loans provided are quite good at this time but Mizeráková noted that this does not mean that every person who is interested in a mortgage loan will get the lowest possible interest rate, 100-percent financing, or a discount on associated fees.

“The percentage of financing depends on the evaluation of the creditworthiness of the client by a particular bank as well as the assessment of the value of the real estate which guarantees the loan,” Mizeráková said. “Discounts are available based on the evaluation of individuals or via banks which have such particular discounts on offer.”

Mizeráková added, however, that some conditions for qualifying for a mortgage are stricter compared to previous years and particularly in comparison with 2008, pointing specifically to current limitations that apply to certain types of real estate, for example recreational real estate, and to certain types of clients, for example foreign nationals or people who cannot document their income.

“The offer of [mortgage] loans is still rich and there is a solution for almost everyone,” Mizeráková said. “However, interested homebuyers should assume that the loan most probably will not cover their whole investment and they will need to co-finance some part of the purchase and related fees from their own resources.”

Mizeráková does not see any reason for dramatic changes to occur in mortgage interest rates.

“Clients are responding relatively well to the current rates and those who would like to pay off their existing loans by [refinancing with] better rates are also responding,” Mizeráková said.

Vaňo emphasised that in many cases taking a mortgage loan is a life-long financial relationship, “a decision which cannot be guided only by an aggressively communicated interest rate”. He suggested that hundreds of thousands of American households learned this bitter lesson after they got lured into risky mortgage loans by low rates that appeared advantageous at first sight, or by too-easy access to loans.

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