Improved transparency around mortgage rates (Summary)

SUMMARY

Finansinspektionen (FI) has worked actively in recent years to make banks more transparent about and increase insight into how lending rates are set. Despite FI's efforts, consumers' insight into, and therefore understanding for, how mortgage rates are set is currently limited. It is difficult to understand why the bank offers a certain rate and the factors that affect this rate in the short and long term.

Today's rules primarily aim to ensure that the consumer understands the terms and conditions of the mortgage agreement. However, there are no direct requirements that the bank explain which factors affect the interest rate that the consumer is actually offered.

Finansinspektionen has received an assignment to investigate and propose measures to increase consumers' insight into how the actual lending rates for mortgages are determined. To achieve this goal, FI is proposing two measures:
Information about factors that affect the interest rate: An amendment to the Consumer Credit Act would obligate a bank to provide the consumer, prior to entering into a mortgage agreement, with information about the actual average mortgage rate at the bank, the bank's cost for mortgages and the consumer-specific factors that the bank takes into consideration during its assessment of the consumer. Based on this information, the bank shall explain how different factors affect the offered mortgage rate and which factors affect the rate in the short and long term.

Information about bundled packages: An amendment to the Consumer Credit Act would obligate a bank to distinguish between the cost for products and services that are offered in addition to the mortgage and the discount that these offer in the form of a cheaper interest rate.

In addition to amending the Consumer Credit Act, FI believes that the authority should be granted authorisation by the Consumer Credit Act. The implementation of the above measures is ultimately dependent on when the Government plans to amend the Consumer Credit Act.