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Study by Bank Austria Creditanstalt on "Construction & Housing": Principal banks enjoy a clear lead in decisions on borrowing

  • One in two people building or purchasing housing obtains several quotations
  • However, price is less important than trust in the end
  • The issue of security is becoming ever more important – BA-CA is reacting with a range of hedging tools

The average Austrians' "principal banks" enjoy a clear lead in terms of trust as far as financing individual construction and housing projects are concerned. This is the result of a representative survey carried out by Spectra Marktforschung on behalf of Bank Austria Creditanstalt (BA-CA). It shows that while one in two people building or buying housing obtains several financial quotations from two or more financial institutions, two thirds then opt to borrow from their principal bank. "Despite many years in banking, I was somewhat surprised by this clear 'principal bank lead'", says Willibald Cernko, the member of BA-CA's Management Board with responsibility for retail customers. "Obviously, as far as borrowing is concerned, it's less a case of  ‘stinginess is coo’ than ‘trust generates loyalty’."  The same applies to the criteria used when deciding which financial institution is to provide finance with 31 per cent of borrowers choosing the bank because it "is my principal bank". 30 per cent say they decided "because of the terms offered". 10 per cent say they "trust this bank". "These results provide affirmation for BA-CA's policy of using responsible advice to acquire borrowing customers rather than cut-price rates", says Cernko.

Home improvements – a hot topic
Of those questioned, a total of 71 per cent are living in their own four walls, which are either a freehold house or a freehold apartment. Nine out of ten Austrians are happy with their current housing but, despite this, improving one's home is a hot topic: in the past three years, one in two have done something in this direction while one in ten has at least thought about changing his accommodation. In actual terms, almost a third of those surveyed have renovated a house or an apartment – that is approximately two million Austrians!

When asked how they felt about the future, two thirds of borrowers said that they were not worried about their loans. However, a third admitted that it was something they were mindful of: among their fears and anxieties, unemployment, at 24 per cent, ranked clearly ahead of a need for more money, at 20 per cent, and the answers "changes to family circumstances" (10 per cent) and "illness, accident, death" (9 per cent). The issue of "security" is therefore of major significance in customers' thoughts regarding long-term borrowing such as that for construction and housing.

Foreign currency loans: hedging one risk at least
The option of being able to protect themselves from risks is also part of borrowers' feeling of security. BA-CA is responding to this increasing demand with its SicherheitsPaket (a security package), which, as a package policy, also contains two policies covering missed instalment payments in the event of unemployment and illness or accident.

Anybody who opts for a foreign currency loan is exposed not just to the risk that interest rates will rise but also that the exchange rate will move against them. Banks offer hedging products for both risks. Cernko: "We started protecting customers borrowing smaller amounts from rising interest rates when interest rates were low. Many of our customers have benefited from these interest rate caps." Anybody who has had borrowings in Swiss francs since 2000 has seen their exposure fall, as the euro has appreciated against the franc.

Security is becoming more important
BA-CA is reacting to this circumstance with an information campaign: customers will be advised of the various options available to them by their account managers – switching into euros or remaining in Swiss francs, with the option of using a hedging instrument to hedge the favourable exchange rate. "The proportion of foreign currency loans in our new business is decreasing perceptibly. However, in more and more cases if a customer opts for Swiss francs, he will also hedge his borrowing against any further increase in interest rates", says Cernko. "In the first place, this combination is still a percentage point cheaper than borrowing solely in euros. And secondly, security is becoming more and more important."

56 new "Bauen&Wohnen" (Construction & Housing) centres
The interest rate cap is also offered on euro borrowings. BA-CA is currently offering mortgage loans from 5.5%; the bullet Euro-Top loan is offered at rates from 5.125% - depending on creditworthiness and other factors. In a pilot project the Bank has established 56 "Bauen&Wohnen" centres in Vienna. These are selected branches in which specialists in construction and housing finance can provide advice regarding complex financing packages and bring them to fruition.

Enquiries: Bank Austria Creditanstalt Press Office
Christian Kontny, Tel. +43 (0)5 05 05 52483;
e-mail: christian.kontny@ba-ca.com