Self-Build Loans Laughing all the Way from the Bank

Customers who took out high interest loans to help build their own homes may now have the right to switch to new, cheaper products.
Terraced houses in Düsseldorf.

German banks are bracing themselves after a customer protection agency said that three quarters of all customers who took out self-build mortgages, designed for people who want to build, rather than buy their homes, have been misinformed about cancellation rights.

Many people who took out mortgages when interest rates were higher have long been denied the chance to switch to new, lower interest products because lenders insisted they had no right to cancel the original loan outside a two week cancellation period.

A customer protection agency claims now to have won customers the right to cancel the loan option at any time. Most lenders had said it would have to be done within a two week deadline.

The changes could cost banks around €1 billion in lost revenues, as loan repayments will fall sharply.

Haus & Grund, an association of real estate owners, is mobilizing its 900,000 members against the banks, with the support of law firms Baum, Reiter & Associates and Gansel Rechtsanwälte.

“Both law firms together have already helpd more than 3,000 loan holders structure their debt,” said Kai Warnecke, general manager of Haus & Grund.

Statistics from Baum, Reiter & Associates suggest that around 80 percent of loans issued by two banks, ING Diba and Sparda Bank West, may be affected.

“In the period between 2002 and 2010, more than 10 million mortgage contracts were finalized,” explains Mr. Warnecke. “More than half of them had incorrect cancellation clauses.”

The leading organization of the banks, the Deutsche Kreditwirtschaft, argues that the law has not yet made it clear whether many cancellation clauses were unfair or misleading. The Federal Court of Justice ruled in 2012 that the existing clauses may not be valid under the law and customers should have a right to chance to cheaper loans.

The consumer protection group estimates the changes could cost banks around €1 billion in lost revenues, as loan repayments will fall sharply if customers switch to low interest loans.

 

Frank Drost, Jens Hagen and Reiner Reichel are correspondents for Handelblatt. To contact the authors: [email protected], [email protected] and [email protected]