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How Swedish banks are making a living on mortgage businesses

Thursday, 24 May 2012
Banks are earning twice as much on the mortgage loan as on other banking activities. The margins are increasing and are back at the same level it was before the financial crisis. Thus, there is plenty of room for bargain on mortgage rates, according to a recent report.

Swedish Financial Supervisory Authority (FI) writes that “It is difficult for customers to know what they are paying for today as banks are not clear in showing. We want to contribute to the clarity, 'said Martin Andersson, Director General ofFinancial to Swedish Radio on Thursday morning.
There is thus a clear negotiating room for mortgage customers. The margins between the customer's mortgage rate and the funding costs have increased and are now 1.1 percentage points, writes Financial Supervisory Authority (FI) in the report.

Given the banks' other charges remains a margin of 0.4 percentage points. It offers a return on equity of 22 percent, significantly more than the banks' total returns, writes FI.
“As the banks need larger buffers at the same time we must not surreptitiously offload the cost onto customers. The owners must also take a large share of the cost price,” says Martin Anderson.

For an average mortgage customer in Stockholm with a loan of Skr1.5 million equivalent margin Skr6000 a year.

According to FI Swedish mortgage customers negotiate and it could on average reduce their rate by 0.2 percentage points.
While FI notes that there is an opportunity to negotiate down their mortgage rates underlines also the importance of the customers are aware of the costs they pay to other bank services and products.
“Clarity has become worse as the link between risk bank rate and mortgage rates have declined. Banks' costs have increased but the margins have increased even more, says Martin Andersson to radio Sweden.
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