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Mortgage interest margins fell sharply

May 31, 2019 0 Comment


In May, interest margins on mortgages with longer fixed-interest periods (fixed or extended for 5 years) fell sharply. This is evident from the Good Lender Rentebarometer. The financing costs increased, but the mortgage interest remained stable. This has ensured that the profit margin for the fixed-rate period of 10 years has fallen by 0.31 percentage point. The excess profit in May 2019 was 0.49 percentage point.

This also applies for longer fixed-interest periods. Most are opted for a new mortgage with a fixed-rate period of 10 years or longer. Interest rate increases are visible from June. The long-term interest rate was increased by 0.1 or 0.2 percentage point by most banks. So now we have to wait and see whether the decrease in the margin is structural or whether it is of a temporary nature.

Two reasons for declining interest margins

Two reasons for declining interest margins

Banks face competition from insurers and pension funds
The first reason is that large banks face increasing competition from insurers and pension funds over the longer fixed-rate periods. It has been apparent for some time that the top three large banks are losing market share compared to insurers and pension funds. It is not possible for these banks to pass on the increased rates on the capital market in the mortgage interest, because they want to maintain their market share. Insurers and pension funds are less affected by the increased costs because they are less dependent on financing on the capital market.

A rise in interest rates leads to an additional burden on acceptance and management departments
The second reason is that an interest rate increase often leads to an additional burden on the acceptance and management departments of the banks. People would like to benefit quickly from the lower rates. The pressure on these departments was already considerable due to the tightening of the borrowing standards as of 1 July 2019 and the large number of requests from existing customers to break open the existing interest rate contract (interest brokerage and transfer). By gradually raising interest rates at the expense of the margin, there is less unrest in the market and less work pressure at the bank.

Mortgage interest margins fell sharply

Mortgage interest margins fell sharply

The financing costs for the shorter fixed-rate periods in May 2019 have barely or not risen, according to the Good Lender Rentebarometer. This is also a possible explanation of why there has recently been an increase in interest rates for longer fixed periods and not in interest rates that are fixed for shorter periods.

Buyers and owners of their own home still pay too much

Buyers and owners of their own home still pay too much

Furthermore, the Good Lender Rentebarometer shows that the average profit in March and April of 2019 was 0.91 and 0.74 percentage points respectively, and in May 2019 an average of 0.51 percentage point extra profit was made on mortgages. This means that buyers and owners of an owner-occupied home pay an average of 85 euros more gross on a monthly basis when taking out or revising their mortgage than is necessary if the normal profit margin were calculated.

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