OP: Finnish borrowers increasingly interested in managing interest rate risks

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OP: Finnish borrowers increasingly interested in managing interest rate risks

A blanket of snow covered roofs, roads and cars in Vallila, Helsinki, on 23 February 2022. (Vesa Moilanen – Lehtikuva)

THE 12-MONTH EURIBOR, the most common reference rate for housing loans in Finland, has risen by more than 0.3 percentage points to -0.186 per cent since the beginning of the year.

OP Financial Group on Wednesday reported that the increase, along with the accelerating inflation that has contributed to it, has compelled mortgage borrowers to hedge their loans against further increases in interest rates.

The Finnish financial group revealed that the euro-denominated share of new housing loans protected against interest rate increases – most commonly by means of a rate cap – rose by 55 per cent year-on-year in February.

The share of new housing loans secured against interest rate volatility stood at 41 per cent, well above the 30 per cent in the entire housing loan stock. Hedging tools are popular particularly for loans with long repayment periods and loans for used detached homes, according to the financial group.

“Russia’s attack on Ukraine is creating uncertainty in regards to interest rates, and it remains advisable to hedge against increases in interest rates,” stated Kaisu Christie, the head of consumer lending, collateral and real estate business at OP Financial Group. “Interest rate protection is of interest particularly to young people and low-income people taking out new housing loans.”

By far the most popular interest rate cap is 0.01 per cent, according to her.

OP Financial Group forecasts that Euribor 12 will rise above zero during the course of this year and further to one per cent in the next one or two years.

A lucrative business for creditors, interest rate caps and other hedging tools, such as collars, benefit borrowers if interest rate costs exceed the price of such tools. Experts at banks have described the cap as an insurance of sorts that offers peace of mind over borrowing costs.

OP Financial Group on Wednesday also highlighted that only six per cent of housing company loans are protected against interest rate volatility.

“The primary reason for the low level of protection is that people are unaware of the possibility to hedge housing loans against interest rates and they are consequently not discussed in general meetings,” told Heikki Peltola, the head of retail banking for small and medium enterprises at OP Financial Group.

“It is nonetheless worthwhile to look into the possibility of interest-rate protection because interest rate hikes hit particularly large housing company loans.”

While the average housing company loan is only 300,000 euros, some housing companies have taken out up to seven-figure loans. Large loans are common particularly among new-builds that straddle residents with large housing company loans and housing companies that have carried out pipe repairs or exterior renovations.

Aleksi Teivainen – HT

Source: www.helsinkitimes.fi

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