Lack of competition on mortgage loans makes it easy to raise prices. New law on mortgage credit does not change this. Expect that the price increases for mortgage loans will continue.
Over the past 5-6 years, mortgage companies have raised their prices significantly. For some types of loans, the price has increased by several hundred percent. At the same time, it has been impossible to change the mortgage company for many borrowers, because their loan-to-value ratio exceeds the legal limit. These people have actually been spelled to their company.
Need for increased competition on mortgage credit
Last year, the Minister for Growth set up an expert committee to come up with suggestions for greater transparency and mobility in the mortgage market. In September, the committee saw seven recommendations to make the market more efficient. So far so good…
Download Report from the Expert Committee on Transparency and Mobility in the Mortgage Market (pdf)
The recommendations have now become a draft bill following a political agreement in January 2017, and this is where the problems are manifested. For the bill that has now been submitted for consultation, it is unlikely that there will be any effect on competition in the mortgage market and the hard-hired homeowners. In the future, the companies will also be able to easily raise prices without customers being able to do anything about it, which will not change the new legislation.
New law does not go far enough
Now the bill has been sent in consultation with the following elements:
- Restrictions on the redemption costs of the company that sets the prices
- Limitations on why you have to make contributions, etc. up
- Opportunities to change company even if the loan limit is exceeded
- Extended notification period for price increases
- Better transparency in market prices
As you can see, the proposal goes in the right direction, it just doesn’t go far enough to really do anything about the problems. For example, borrowers who terminate a loan must continue to pay redemption costs in accordance with the new rules.
It is totally unreasonable to incur the costs of borrowing from a mortgage company that raises prices. Preventing customers from moving when prices are raised is an effective way to limit free price competition.
Have mortgage rates peaked?
On the whole, the bill is very vaguely formulated when it comes to limiting the causes of the price increases. For example, raising the warning period for price increases to 6 months does not have much effect when most companies have already done so voluntarily.
It is good enough that the proposal will create better market transparency by creating a new price portal. But if real transparency is to be created, the individual borrower must be able to decide which loan is right for her.
The transparency goes to the whistle in the mortgage industry
Spell binding of customers continues
The most serious error in the bill, however, applies to the possibilities of changing the mortgage company when the loan-to-value ratio is too high. Although the bill opens this possibility, it also requires the receiving company to accept the excess risk on the customer. Therefore, it is probably only the few who are attractive to banking or other businesses that get this opportunity.
It should be the company that sets the price up on the part of the loan that exceeds the loan limit if a borrower chooses to switch in connection with a price increase. This will make mortgage credit companies think before raising mortgage rates and fees.
What does it cost to change a mortgage company?
Mortgage price increases continue
Unfortunately, it is far too clear that the finance lobby has succeeded in diluting the bill. It does not contain the necessary changes needed to create mobility and competition in the mortgage market. It’s strange when the politicians are so eager to promise homeowners security. Instead, you have to expect the price increases for mortgage loans to continue.