I'm still struggling to understand the Finnish mortgage market, so a few thoughts (apologies for anyone reading - not the most structured thoughts I've ever had!).
One key difference I noticed early on is that about half of mortgages are issued to 'Housing Corporations' as opposed to private individuals. I thought I was on to something, but when I checked it's already factored into the statistics.
Incidentally, here's an interesting chart of the imputed margin rates over the last 5 years that shows competition has been driving down margins:
https://www.suomenpankki.fi/en/Stat...ennalliset_korkomarginaalit_suomessa_chrt_en/
So I dug deeper. It's difficult to find actual customer rates on the bank websites, but I did find this when I went to the loan calculator on OP Bank.
"
The interest rate given automatically by the calculator is the current default interest on the home loan (12-month Euribor + customer-specific mark-up). You can change the interest rate and try how changes in interest rates affect the loan."
The rate defaulted to 2.25%! It's possible that their website isn't up to date, but it's the only reference I could find to an actual customer rate
https://uusi.op.fi/private-customers/loans-and-homes/loan-calculator
One thing that is interesting is their funding model. I know the original report in OP referenced that mortgages were primarily deposit funded, but that's not the case. The Finnish market has benefited greatly from an uplift in securitisation recently - currently almost 50% of mortgages are pledged as security for covered bond type vehicles. Hypo for example is a niche lender, and references the use of covered bonds in reducing their cost of funds. They issued covered bonds for the first time in 2016, while almost doubling their loan book (they issued 1bn in new lending in 2016). Their covered bonds are 'AAA' rated, allowing them to fund a portion of their portfolio at near Euribor rates. From their annual report:
"The inauguration of covered bond issues during the financial year decreased the funding costs which was clearly reflected in the improvement in Hypo’s net interest income." http://www.hypo.fi/wp-content/uploads/2017/03/HYPO_ar_2016_en_final.pdf
Another point, as referred earlier, is that customers are charged an arrangement fee for setting up their mortgage. This tends to be around 40bps upfront.
The bit that doesn't make much sense is their near zero impairment charges / provisions. Again, back to Hypo, in the year 2016 they had a total charge of 300k, directly attributable to 2 single loans!! "
Loan impairments during the financial period totaled EUR -0,3 million (EUR -0.01 million) and were due to two problem loans." It's either a case that their collateral model really works, or they're in for a shock in the future.
That brings me to their collateral structure:
Their LTV is quite complex. From OP Bank
https://uusi.op.fi/private-customers/loans-and-homes/home-loan
"
Example of calculating the LTV ratio: The home sales price is 100,000 euros. The home buyer's self-financed amount is 20,000 euros. They need a home loan worth 80,000 euros. In this case, the LTV ratio is 80% (80,000/100,000 *100), or compatible with the law.
Because the home's collateral valuation accounts usually for 70% of the fair market value, the collateral shortfall after pledging the home is 10,000 euros (80,000 - 70/100*100,000) for which side collateral is needed. To fill this shortfall, the borrower could, for example, take out an OP cooperative bank's loan guarantee although that cannot be taken into account in the calculation of the LTV ratio."
This would mean a customer would almost always need some additional guarantee, unless they've a massive deposit. These come at a cost of about 2.5% of the guaranteed amount.
In summary, there are people who set up a mortgage lender here in the morning if they could offer mortgages with those collateral values, that funding base, and charging customers arrangement fees. And I'm talking about being able to reintroduce trackers here - but tracking Euribor rather than ECB, which is a much easier rate to follow for funding.
