There is something going on in the housing markets right now, which prompted me to give an urgent warning to home buyers in Finland. The reason why I think this is urgent, is that unless you are aware of this risk as a home buyer, it can cost you A LOT of money. So, if you are considering buying a home right now, or if know of someone who is thinking of buying a home, you need to know about this.
So let me explain.
Concerning behavior from banks
There is a lot going on in the world right now, and the housing market in no exception. On top of everything else that is going on, I recently heard that in some cases banks have started to hold back on giving mortgages to customers, even after they’ve given them a mortgage promise. I find this very concerning and even detrimental to some home buyers, potentially costing them over ten thousand euros.
But before I go into the details, let me just mention that I have put together a Free webinar where I explain how I see the current housing market in Finland right now, with fears of inflation, recession, stagflation and an energy crisis in the horizon. In the webinar, I will provide the big picture of what I see going on right now, regarding macro issues. So, if you’re interested in understanding how you should take the global turmoil into considering if considering buying a home in Finland, sign-up to the webinar on buying a home in challenging times from this link.
But now, let’s dig deeper into the actual topic of this blog post.
So, I recently listened to an interview in Kauppalehti, in which Marina Salenius from Huoneistokeskus, a big Finnish realtor company, mentioned something concerning. She said that recently some banks have backed away from giving a mortgage to home buyers, even after they had already given them a mortgage promise (i.e. “lainalupaus”). The reason why this is concerning is that in the past, the loan offers given by the bank have typically been considered as good as binding, meaning that the buyers have been confident that they will get a loan from the bank. However, a home buyer should no longer trust to get a mortage, even if they have a mortgage promise from the bank. If you do, this can cost you a lot of money.
A bank backing away from a mortgage promise is unheard of
You see, typically before buying a home in Finland, a home buyer would go to their bank and ask for a loan offer. At this stage, the bank will give the buyer an offer, which is typically valid for 3-6 months. In this offer, it states that the bank will give the buyer the mortgage, assuming that they have not lied about their finances etc etc. This is a promise, made by the bank, and until now, it has been considered to be a binding promise.
I’ve NEVER heard banks withdraw from these promises before, until now. At this point, I have no idea how common this has become. It could be just a few cases, or a few percent of the cases, I really don’t know. But that is beside the point.
What is really important here, is how this may affect home buyers.
You. Me. and your friend George.
Home buyers having to back away from a purchasing offer?
An important thing to understand is that, In Finland, when buying a home, you can either
-give an non-conditional offer on the home,
-or give a conditional offer on the home.
There are many conditions that you can put in an offer. For instance, you can say that if the seller accepts your offer, the seller will need to move out of the home withing 2 weeks time, or that you want an outside expert to inspect the home for water damage etc etc.
You can also put in a conditional offer if you are unsure of your financing. For instance, if a buyer does not yet have a valid loan offer from a bank, they will want to make the offer conditional. If you put in a conditional offer, and those conditions are not met (i.e. if you don’t get a loan from a bank), you can withdraw from the deal with no financial consequences to you.
However, problems arise if (and when) home buyers put in a non-conditional offer, only to find out that their bank will not stay true to the mortgage offer that they have given. In such cases, the home buyer may end up paying dearly.
Warning to home buyers: Home buyers will pay the penalty
The reason why this may cost home buyers is that typically when putting in a non-conditional offer to buy a home, there is a clause saying that the buyer cannot back away from the deal, or if they do, they’ll need to pay a penalty fee of 4% of the selling price of the home.
So, lets say that after making a non-conditional offer, you need to back away from buying a 200 000€ home. This will result in you needing to pay a penalty of 8000€, unless you are able to secure the finances for the deal from another bank, or through friends and family. In cases like this, there is a big risk that the hard-earned saving of the home buyer will be swept away, just like that.
In my view, this behavior is very irresponsible from the banks and I took it as my duty to give a warning to home buyers about what is happening. My hope is that banks clarify to their customers that the loan offer is not binding, so that home buyers don’t get hurt by this miscommunication in the future.
So should I be buying a home in Finland right now?
So, if you are buying a home in Finland right now, remember to put in an optional offer, even if you have a mortgage promise from your bank.
More importantly, if you are considering buying a home, now may be a good time to take a deep breath and not rush into things. There is a lot going on right now, and in my view, now is the best time to focus on educating yourself, learning about the markets and to make sure that you really understand what you are doing. One good way to continue your education process is to join my free webinar on buying a home in challenging times, where I will share my views on how I see the markets right now and what may be ahead.
Finally, if you have a friend considering buying a home in Finland, do them a favor, and give them a heads up about this warning to home buyers.