Home » Business News » 2010 » December » December 7, 2010

OP-Pohjola Group Asuntoaamu event: Borrowers with a Home Loan Benefit from the Recession

December 7, 2010 - London

The world economic recovery is underway, the euro-area economy is growing despite the debt crisis and the outlook for the Finnish economy is good. Those who have raised a home loan are still capitalising on low interest rates in the wake of the recession, and hikes will not be in the offing until the end of next year.


The recession had a positive effect on the Finnish housing market and housing finance. Home loans based on floating rates curbed home price increases before the recession and this benefited Finnish borrowers when interest rates went down.


- The equal payments method that dominates in Finland as a loan repayment method is well-suited for floating-rate home loans. When interest rates are low, loans are amortised apace and when interest rates rise, the monthly repayment remains unchanged, says Mikko Hyttinen, Senior Vice President.


Finnish households have saved money with their home loan interest charges. If the average interest on home loans had remained as high as in October 2008, the amount of interest charges paid for home loans until September this year would be roughly 3.7 billion euros higher.


- My rough estimate is that the amount borrowers saved money because of low home loan interest rates due to the recession averaged 4,500 euros during 2008-09.


Low interest rates also kept demand for homes moderate while preventing prices from falling excessively.


- However, low interest rates have not encouraged households to take out any bigger home loans. The size of new home loans is smaller and home buyers have reckoned with higher interest rates through a shorter loan term, says Hyttinen.  


Only a slight slowdown next year


The world economic outlook is currently more favourable than last summer in spite of the euro-area debt crisis. Talk of a double-dip recession has stopped as information on the present-day situation and forward-looking economic indicators have chiefly been better than expected. OP-Pohjola Group's economists expect the world economy to grow at a rate above the average next year, or by 4.2%.


- The debt crisis will not derail the euro-area economy on the whole. The euro-area economy will grow at somewhat the average rate in the next twelve months. This growth rate is sufficient in order for the ECB to be able to be geared up to give up the record-low main refinancing rate in the second half of 2011. The rise in short-term rates is, however, expected to remain small and will not gather momentum until 2012, says Reijo Heiskanen, Chief Economist of OP-Pohjola Group.


According to OP-Pohjola Group's economists, the 12-month Euribor is anticipated to increase from its current level of slightly over 1.5% to 2% by the end of 2011. Interest rates for new home loans will probably rise slightly less from their current level of around 2.1%


Finnish economic growth sped up by the autumn, standing at around 4%, and the near-term outlook is still good. However, the fastest growth spurt will be over after the winter. Heiskanen expects the Finnish economy to grow by 3.4% this year and by 3.3% next year, which is more than predicted earlier.


- The Finnish economy has picked up due mainly to the exports recovery although consumer spending and housing construction have also played a big role. Economic growth will be on a more solid basis because investments other than those in housing construction will also begin to recover, states Heiskanen.


Housing market in a positive mood


The euro-area debt crisis has had no drastic effects on the Finnish housing and property market, states Kenneth Sandberg, Vice President, Estate Agent Services of OP-Pohjola Group.


- Home prices in Helsinki and the Helsinki Metropolitan Area have shown a moderate increase since the minor price decrease of last summer. There is brisk demand for both detached houses and flats. Housing starts have picked up and buyers have a large number of options available on the market. People have also shown growing interest in buying a holiday home. The mood in the market is expected to continue positively far into next year, says Sandberg.


Year 2010 looks very good for the OPKK chain. According to preliminary information, OP-Kiinteistökeskus real estate agents brokered almost 15,900 homes and business premises in January-November. The trade figures for 2010 are forecast to be even higher than those for the peak year 2005.


Mikko Hyttinen, Senior Vice President, mikko.hyttinen @ or tel. +358 (0)10 252 2211
Reijo Heiskanen, Chief Economist, reijo.heiskanen @ or tel. +358 (0)10 252 8354
Kenneth Sandberg, Vice President, Estate Agent Services, kenneth.sandberg @ or tel. +358 (0)10 252 4635

This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients.

The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.

Source: Pohjola Pankki Oyj via Thomson Reuters ONE


Comment on this story