With the real estate market gaining momentum, AB DNB Bankas, a member of Norway's largest financial group, launches a new market-driven pricing for new floating-rate mortgages starting from February 17 The new pricing will define more clearly which part of the rate is linked to the individual financial circumstances of the customer from those that depend on market situation.
Like before, DNB Bankas will continue granting mortgage loans with fixed or floating interest rates. Floating-rate mortgage interest rate will consist of two parts: fixed and variable components of which will be calculated differently to the new bank’s customers.
The fixed interest part on mortgages, or to put it simply, the customer's margin, will be set for each customer individually taking into account their income, credit history, and loyalty to the bank. This part of interest will be fixed for the entire term of the outstanding mortgage agreement. To compare to previously calculated customer's margin, the new margin will be lower as the long-term funding rate component will be eliminated from the customer’s margin.
The variable rate component will be linked to the European banks funding rate. It reflects long-term funding rate in the market which is calculated by adding the European banks funding margin to the EURIBOR or VILIBOR that indicate the short-term funding rate. The index is calculated by international agency Bloomberg that calculates the average funding rate at which currently twenty one highly-rated European banks lend to each other based of their Euro-denominated bond quotes.
"The customer knows beforehand that the interest rate he pays will depend only on the changes in long-term funding rate in the market, while other terms shall be equal to everyone irrespective of when the agreement is signed - now or in the future. That brings more transparency to the competition among the market participants," - says Dr. Šarūnas Nedzinskas, DNB bank's executive vice-president and board member in charge of retail banking development.
This DNB pricing is applicable to new mortgages only. The agreement terms will not change for customers who took mortgage loan from DNB bank before February 17 th.
European banks funding rate is published on DNB bank's website. The European banks funding margin index is available on Bloomberg website ( www.bloomberg.com/quote/BXEBFM:IND).
Growing market
According to the preliminary data of the Association of Lithuanian Banks, last year the market of new mortgage loans grew by 34 per to compare with 2012. Within the year 2013, DNB bank granted 4 thousand new mortgage loans amounting to over half a billion litas. DNB bank's newly issued mortgage loans increased by 41 per cent year-on-year, while its market share in new mortgages averaged 28 per cent on each month last year. As at the end of 2013, the mortgage loans issued by DNB bank to Lithuania's residents amounted to LTL 3.52 billion. This makes 17.7 per cent of the country's mortgages market.
Š.Nedzinskas notes, that although the number of new mortgage contracts signed with DNB Bankas in 2013 went up by 48 per cent year-on-year, the average loan amount slightly decreased making about LTL 130 thousand. This shows that individuals tend to allocate a considerably higher portion of own funds as down-payment in the purchase of housing in order to reduce the financial liability.
"The growth of the mortgage loans market mainly resulted from the increase in supply of attractive residential property offered last year, especially in Vilnius, and also, from the still relatively low interest level in both loan and deposit markets. The plan to introduce the Euro in Lithuania appears to give some stimulus for buying as well. On the other hand, the growth is somewhat slowed down as a higher amount of own funds needs to be accumulated for the down-payment and also due to the still limited real salary growth," Š.Nedzinskas said.
Last year DNB bank recorded the highest demand for mortgages in the capital city, i.e. about 47 per cent of new agreements were signed in Vilnius District, 25 per cent in Kaunas District, and 16 per cent in Klaipėda District. In 2013, the mortgages market was also significantly more active Panevėžys and Šiauliai than in the previous year.
At the end of December, the average mortgage loan issued by DNB bank in Vilnius amounted to LTL 165 thousand, i.e. higher than in any other city of the country. In Klaipėda, the average loan made LTL 142 thousand, while in Kaunas it was LTL 128 thousand.
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