Variable interest rate real estate loans are currently making things difficult for many Austrians, as the increase in base rates has increased interest rates on variable loans and thus also repayment rates. As a result, many borrowers find themselves in financial difficulties. The government now wants to help those affected.
In principle, the ÖVP is open to the Green Party’s proposal to help those affected by variable interest real estate loans. The draft of the green parliamentary club, which provides for the conversion of a variable interest loan into a fixed loan, is not a problem, said a spokeswoman for the ÖVP club, clarifying the statements of ÖVP club boss August Wöginger in the press foyer.
“What unites us is the goal that we want to help those people, and especially the families here,” Wöginger said on Wednesday after the meeting of the Council of Ministers. “We need to discuss the measures to get there.” By this, Wöginger did not mean that they were open to the green proposal – on the contrary, the draft for an initiative proposal was “no problem”, according to the club.
The Greens want to convert credits retroactively
The Green Party’s proposal, according to which private borrowers should be able to convert a real estate loan with variable interest rates retroactively, is – contrary to what was originally reported in the media – not a proposal from the (Green-led) Ministry of Justice, but one from the Green Parliamentary Club, “which we have submitted and which we want to discuss,” said Green Club leader Sigrid Maurer in the press foyer. According to the current draft proposal, the conversion should apply retroactively to all variable mortgage or real estate loans taken out from March 21, 2016. Banks would therefore be obliged to offer conversion to all stakeholders. The conversion option should be available once – until the end of 2024.
According to the proposal, the conversion claim should allow for a change as if the borrowers and the bank had already originally agreed (“before the unforeseen rate increase”) on a fixed rather than a variable loan rate. It would therefore be concluded retroactively under the conditions at that time – only with a fixed interest rate. The banks must make a switching offer to credit customers within two months, stating the fixed interest rate.
Financial market supervision must set fixed interest rates
In addition, fixed and variable rate loans should be compared so that consumers can compare contract terms at a glance. In case of non-compliance, the proposal provides for administrative sanctions for banks. The fixed interest rate to be applied must be determined by the Financial Market Authority (FMA), so that banks do not make offers with arbitrarily high interest rates.
Many families have to pay much more
Maurer said there are “many examples of families” now having to pay much more per month than before; approximately 500,000 households are affected. The people who took out these floating loans could not have foreseen that Russia would invade Ukraine, she said, one of the reasons for the interest rate hikes. The background to the problem is the interest rate turnaround that the European Central Bank (ECB) initiated last year. The increase in the policy rate has increased interest rates on variable loans and therefore also repayment rates, causing many borrowers to experience financial difficulties. “We believe that we need to provide support here, because people are succumbing to this interest burden,” Maurer said.
Wöginger: “Priceless for families”
Wöginger spoke of a “dramatic change” in interest rates in the past two years. “The variable interest rate has risen sharply and quickly, and that is of course effectively unaffordable for these families in times like these.”
The “Kurier” had previously expressed reservations on the part of the ÖVP-led Ministry of Finance. “The proposal was submitted at short notice and at first glance raises constitutional questions,” the newspaper quotes from a statement from the ministry. According to ‘Standaard’, the Ministry of Finance wants to investigate the idea. However, the proposal is “half-baked”. The effects on the stability of the financial markets and banks have not been investigated. Moreover, it is difficult to intervene in contracts afterwards. A statement from the ministry also said: “In the current interest rate situation, this proposal would not bring any relief to the people. This means that no apartment or building will be created. The goal should be to create housing and real estate, but not with this approach. This proposal would be an interference with the free market.”
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
