Wednesday, 1 October 2008

Drawdown of Housing Loans... On Free Fall

"In August 2008, households drew new housing loans to a total value of EUR 1.6 billion, compared to EUR 1.7 billion in July. Drawdowns of housing loans have not been below this amount since 2004."

According to Bank Of Finland, the number of drawdown of housing loan is the lowest since 2004.
This clearly show a turn in the cyclical housing market. This usually indicate a future fall in prices.

I could not stress even more, and even warn people, to be very carefull before taking a bridge loan i.e sell your house first then buy a new one. That what the Finnish call "the two house trap".
If you are in this situation, don't count on bank to renegotiate your bridge loan, as Bank are afraid that since house price will fall futher, it will only increase their losses...

What is a bridge loan?

A bridge loan is a type of short-term loan, typically taken out for a period of 2 weeks to 3 years pending the arrangement of larger or longer-term financing.

Bridge loans on a property are typically paid back when the property is sold.

The trap?

Is the fact that You cannot sell your property, because of a downturn in the housing market, then you are unable to pay back this temporary loan. The bank has no choice but to take over your assets and sell them in order to get back its money. Bank are here to be profitable, they are not charity...people should remember that!


impero said...

Where are you taking those charts from? i saw in a previous post that the source was Suomen Pankki or, but i cannot find them...

HousingFinland said...

...kindly copied from Bank Of Finland site :