The Competition Council has decided that there is no basis for repealing Nykredit's 2003 commitment regarding a price cap on administration margins, which is paid to Nykredit in addition to interest on mortgage loans. At the same time, the Council has decided that new commitments (commitments A and B) can replace the initial commitment from 2003.
The price caps origins from accepted commitments related to a merger between Nykredit and Totalkredit in 2003. The Council’s original concerns about the merger of Nykredit and Totalkredit – i.e. increased concentration and removal of Totalkredit as a competitor in the market – still exist to the same extent as in 2003. In 2016 the market share of Nykredit was [40-50] percent. Therefore, the Council has not found it justified to repeal Nykredit's initial commitment regarding a price cap. Nykredit has offered new commitments (commitments A and B), which the Competition Council has approved.
The Council has found that there is justification for minor increases in administration margins for some of the existing mortgages in Nykredit Realkredit (commitment A). This is due to increased costs within Nykredit. Nevertheless, margin rates for these customers will remain the lowest in the market
Regarding new mortgage loans issued by Nykredit Realkredit, they will not be subjects to a price cap. Instead, new customers will in the next seven years be guaranteed lower switching costs if Nykredit announces higher margins (commitment B), which can contribute to more competition.
The new commitments A and B imply that:
Existing customers in Nykredit Realkredit A/S with fixed-rate loans with installments will not experience higher administration margins. However, existing customers with more risky loans – variable rates and no repayments – can experience margin increases up to 0.15 percentage points. The Council has emphasized that the new commitments protect existing customers in Nykredit Realkredit against price increases due to loss of competitive pressure after the merger. These customers will continue to pay the lowest in the market.
Until 30 June 2024, customers with new mortgage loans in Nykredit Realkredit will not be charged any brokerage fees or others fees if the customer chooses to prepay the loan up until six months after any notification of margin increases from Nykredit. The Competition Council estimates that this new commitment can promote competition and make it less profitable for Nykredit to raise margin rates as customers' switching costs will be lower.
Furthermore, for customers with new mortgages Nykredit will until 30 June 2024, settle any possible margin rebates in connection with the quarterly mortgage payment on the loans. The Competition Council estimates that this will reduce the risk of loyalty inducing effects due to the rebates – i.e. the risk that a rebate will prevent the customer from switching to another mortgage lender.
The commitments on the new loans will last until 30 June 2024. In this assessment The Competition Council has taken into account that the effect of the initial commitment will be very limited in 2024.
This is due to the fact that Nykredit since 2012 has chosen to issue all new mortgage loans through Totalkredit. Totalkredit is not subject to any commitments. Thus, in 2024 there will only be few customers left with ‘old mortgages’ in Nykredit Realkredit, which will still be protected against increased administration margins.
Nykredit's new commitments enter into force as of 27 September 2017.