Significance of loan margins increased in pricing of housing loans

Drawdowns of housing loans picked up further in May 2016 as households drew down new housing loans totalling EUR 1.8 bn. The average interest rate on new housing loans was 1.21% with the margin accounting for 1.19%. Hence, the reference rate only accounts for a minor proportion of the total interest rate, but the statistics show that the choice of reference rate may have an impact on the margin on a housing loan.

Up until 2012–2013, the choice of reference rate had very little impact on the margin on a housing loan, and the development of housing loan margins was broadly uniform regardless of the reference rate. As the overall level of interest rates has decreased further since 2014, the significance of the margin has increased significantly, and variation has begun to emerge.

In May 2016, the margin on housing loans linked to the 1-year Euribor was 0.06 percentage points higher than the margin on housing loans linked to the 6-month Euribor, and 0.16 percentage points higher in comparison with housing loans linked to the 3-month Euribor. However, housing loans linked to the shortest reference rates are granted in limited volumes, and therefore only a small proportion of customers can benefit from their lower margins. Similarly, there are few loans linked to prime rates. This reflects partly their unfavourable interest rate structure: in addition to the higher reference rate in comparison with the Euribor rates, they are on average also subject to higher margins.

Loans

At the end of May, the stock of euro-denominated housing loans totalled EUR 92.7 bn and the annual growth rate of the housing loan stock was 2.6%. At end-May, household credit comprised EUR 14.2 bn in consumer credit and EUR 16.1 bn in other loans.

New drawdowns of loans to non-financial corporations (excl. overdrafts and credit card credit) amounted to EUR 1.7 bn in May. The average interest rate on new corporate-loan drawdowns rose from April, to 1.84%. At the end of May, the stock of euro-denominated loans to non-financial corporations was EUR 73.7 bn, of which loans to housing corporations accounted for EUR 24.2 bn.

Deposits

At end-May, the stock of household deposits totalled EUR 83.2 bn, and the average interest rate on the deposits was 0.24%. Overnight deposits accounted for EUR 58.5 bn and deposits with agreed maturity for EUR 10.3 bn of the total deposit stock. In May, households concluded EUR 0.5 bn of new agreements on deposits with agreed maturity, at an average interest rate of 0.62%

Notes:
MFIs comprise all monetary financial institutions operating in Finland.
Loans and deposits comprise all euro-denominated loans and deposits vis-à-vis the euro area as a whole, with countries other than Finland accounting for a very small share of total volumes.