“Landsbankinn decided this spring to use the new property valuation for refinancing home loans as soon as they were announced. Applications for refinancing with the bank multiplied immediately after this; as has happened in previous years when we start taking account of new valuations,” a written response from Landsbankinn says.
Large valuation rise
The national registry unveiled the new 2023 on-paper valuations for all properties in Iceland at the end of May, as it does every year. The valuations are based on sales prices of similar properties in similar areas and are used for various reasons, including the setting of property taxes, and the processing of home finance. The between-years rise of nearly 20 percent for all properties (and over 23 percent for residential properties) was the biggest ever.
Arion banki and Landsbankinn started working with the 2023 valuations immediately, while Íslandsbanki is sticking with the 2022 figures, which are intended to be valid for the rest of this year.
Arion and Landsbankinn customers therefore immediately enjoy new home finance options, as their credit worthiness is partly calculated from the value of their property. One very concrete way this can help customers is if they are suddenly able to include smaller, higher interest top-up loans into their main mortgage, which they were not eligible to do before the valuation rise.
Kjarninn reporters asked Íslandsbanki why the new valuations are not being used yet, and the response was that it was a decision taken to be responsible, given the financial climate and pressure on the housing market. The risk to Íslandsbanki, though, is that clients could start moving their custom to banks offering the new better terms.
Asked by RÚV if the decision will be reversed if customers start leaving the bank, Íslandsbanki replied that it might. “We think this is a sensible approach when the Central Bank has sent a clear message with its actions. Saying that, we of course listen to our customers and look at all matters in cooperation with them.”
Over 60 percent on fixed interest
In its written response, Landsbankinn sought to justify its decision to move early: “Increased property valuations mean a larger proportion, or even all of a customer’s property loans could come under the basic mortgage and therefore lower the customer’s monthly costs, or give them the option of fixing the interest on their home loans. Fixed interest creates predictability for customers with regard to the burden of their loans and we notice many customers seeking out this security. So far this year, over 60 percent of home loans have been taken with fixed interest rates. With us, the basic mortgage is a maximum of 70 percent of the property’s registered value. If the debt proportion is lower, customers are eligible for more economical fixed interest and customers whose debt is lower than 50 percent of the registered property value enjoy the best interest rates on non-indexed loans.”
RÚV sent the same questions to Arion banki, which has also started using 2023 valuations immediately, but the enquiry was not answered.