Kaupthing Bank issued an announcement to the Association of Real Estate Agents (FF) yesterday stating that as of December 1 the bank will not allow customers to assume mortgages unless the loan’s interest rate is altered to the rate at the time the mortgage is assumed.
“I cannot imagine that this change is legal,” director of Iceland’s Consumer Agency Tryggvi Axelsson told Morgunbladid. “The bank’s decision to reject all assumed mortgages unless the interest rate is increased must take into account the standard contract which mortgage borrowers enter and is notarized.”
“In the agreements I have seen there is no such provision,” Axelsson said, adding the Consumer Agency will call for explanations from Kaupthing Bank and a legal basis for their decision.
Ingibjörg Thórdardóttir, chairman of FF, said this is bad news, but points out that Kaupthing Bank is not the first to make a decision like this. According to Thórdardóttir, both Frjálsi Investment Bank and the savings banks have made similar moves since mortgage interest rates started increasing again.
Kaupthing Bank granted their customers mortgage loans with an interest rate of 4.4 percent in 2004. The rate dropped to 4.15 percent at one point, but since then has soared up to its current rate of 6.4 percent.
To illustrate the effects of these interest rates: annual interest payments on a mortgage of ISK 1 million (USD 17,000, EUR 12,000) at a rate of 4.14 percent amount to ISK 41,500 (USD 706, EUR 485) and ISK 64,000 (USD 1,089, EUR 748) at a rate of 6.4 percent—and these totals are without taking into account the increase of the CPI-linked principal from month to month.