The sudden announcement and rapid entry into force of a legislative amendment on the early repayment at a discount rate hit the financial industry unexpectedly. All market players were shocked by the change, without exception, which could lead to anomalies in the customer.
Seeking a late repayment
Many banks do not even have an internal policy on discounted early repayments at the time of writing, so bank advisors often give confused, sometimes conflicting, information to clients seeking a late repayment.
Credit intermediaries were excluded from the process from the outset as a client supporter, and more specifically did not forbid their involvement, except that the principal (namely the bank or the lender) pay any commission to the intermediary on the credit transactions of the end-customers. Intermediate and home loan brokerage are not regulated by government regulations, and commissions are still allowed.
Fewer banks are working with credit intermediaries
Nevertheless, Fyre Bank was the first to terminate the contract with all its credit intermediaries in a statement, for all retail and small business products, whether credit or anything else. Then came the rumors (in the form of informal communication, as would be the basic requirement in the financial industry) that fewer and fewer banks are working with credit intermediaries.
More and more banks are suspending (temporarily?) The sale of their loan redemption products, as the law only obliges them to let go of the end-repayment customer, they are not obliged to lend if they do not have the right product. Where they are still lending, they generally expect interest rates so high that they would be almost identical to the repayment installments of early repayments at the current exchange rate of $ 230-240.
There is a very small number of banks, savings cooperatives, which may make sense to replace their foreign currency loans because of the more favorable forint interest rates that the market has, but only those so-called “premium” financial customers are welcome, ie those who are currently able to pay their loans.
Focus on its impact on the market
One of the latest developments in the hunt for the ‘responsible’ of foreign currency lending is the statement made today by Sándor Csányi, GFIC leader, that the current bad condition of foreign currency lending is clearly the fault of credit intermediaries, who can be held responsible. Now, let’s set aside how true you are (interestingly, GFIC was the first one to give Japanese yen-based credit), let’s focus on its impact on the market.
It is true that credit intermediaries are the most stimulating factors in the lending process and, at the same time, the natural enforcers of competition between banks. Now we are saying that half of the banks do not pay any commission on mortgage loans, which is a clear sign that they do not want to lend or compete yet.
Banks are also well aware that it is of no value if they do not provide credit for the specific loan repayment itself. People are working there too, knowing that a fresh, free-of-charge loan from Bank A can easily replace a foreign currency loan at Bank B (if I do, Bank B does not want to redeem its own loan).
We hear a lot about bank cartels nowadays, and neither can I refute or confirm this, but one thing seems certain to be outlined in the Hungarian retail credit market: anyone who has money to pay off at 240 HUF Swiss franc will be able to however, these customers will feel the loss to banks on interest rates on forint loans, other customers on high interest rates on foreign currency loans and unfavorable repayment rates.
So is it worthwhile to replace the CHF loan at 180 forints, cutting your debt by 30-35 percent compared to current rates? In general, the following can be said about this:
- Experience so far shows that with an interest rate of 8-10% on forint loans, it may be worthwhile to replace our former foreign currency loan. But only if we trust that forint interest rates will not change much, because with a 2-3 percent interest rate hike, the monthly charges on your new forint loan may already catch up with your current installments before maturity.
- It is also important that in the first year of the loan, the repayment rate of the principal is negligible – this ratio improves over the term, year after year. Now, if someone is redeeming their 3-4 year loan, the new loan is likely to be about the same as the one they were given on that currency. We will start paying off that amount again with a minimum start-up capital.
- It is difficult to say what forint interest rates will come in the coming times, moreover, we do not “commit” to higher interest rate forints for 2-3 years, but for 10-15 or even 20 years. So, if the HUF interest rates go in the wrong direction, our monthly repayment installments may be the same. And we can look for a new bank again …
- Just as foreign currency loans have risk factors, they can have advantages, otherwise they would not have been in such demand over the last 8 years. The repayment installment may develop favorably after a few years if the interest or exchange rate falls. According to experts, the exchange rate of the CHF would be between 200-220 HUF and the current interest rate is too high. If we switch to the Forint, we will permanently lose these opportunities, and it will not be possible to switch to foreign currency again if one of the above factors were favorable.
I can’t clearly advise anyone to buy a loan, because in this economic environment, neither interest nor exchange rates are reliable – and it doesn’t matter that forint loans are difficult to repay or foreign exchange is the way to go, but:
If you are able to pay off your debt from your own funds (with family help) or a loan from another bank and are not afraid of a drastic and permanent increase in the central bank base rate , the bank can negotiate a favorable interest rate premium. 2-3%) might be worth getting into.
If you do not believe in miracles or are afraid of another risky credit trap, but would like some temporary relief, ask for a discount on the discount rate (gain fixing), which will definitely win you 3 years. By then, we will be much smarter than we are now. We hope…