Postponing housing loan repayments is bad policy

Three years ago 2 large Finnish banks, the OP Group and the now infamous Danske Bank, started offering their loan customer the opportunity to postpone loan repayments for a year or more without costs or penalties. It was said that the then CEO of the OP Group had tears in his eyes because he was so moved by this act of charity.

The tears were not caused by an act of charity, but by jumping for joy since the delays in repaying loans would bring a lot of unexpected income from having a stable loan portfolio for the bank to fatten bonuses!

If you believe in altruistic bankers then you believe in fairy tales.

At that time the Ministry of Finance stated publicly that the postponement of loan repayments would be good for the economy because it would boost consumption. But their comments were made in response to a question about the Finnish economy that had nothing to do with those people who had large housing loans. 

Three years later, it is apparent that this offer was a bad idea because interest rates are now rising, and the same people who could have reduced their loans over the past 3 years with almost zero interest rates are now facing higher interest rates of interest resulting in higher monthly loan repayment costs every month. In other words their interest rate exposure has been translated into bankers’ bonuses at their expense.

Three years later, we even have the supervisory authorities saying that these delayed loan repayments were not a good idea given that interest rates are going up. Naturally, the question one should be asking is where were their warning words 3 years ago when this policy was cooked up?

This is another typical matter where banks and their clients do not have symmetrical information and banks take advantage of this for their own profit.

The sass problem is apparent in Sweden where housing loans to housing cooperatives and private clients are really long. In Sweden, interest rates have increased more rapidly due to significant growth within the economy, leaving some borrowers with many challenges to repay their loans on time. 

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