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Swedish watchdog slams home builder contracts

Sweden's consumer watchdog has criticised 15 small house builders for unfair contract terms, the agency announced on Tuesday.

Published: 28 December 2010 16:36 CET
Swedish watchdog slams home builder contracts

The Swedish Consumer Agency (Konsumentverket) scrutinised 15 single-unit house builders over allegations of unfair contract terms. The 15 companies represent about 80 percent of small house production in Sweden.

In most cases, the contracts run contrary to existing legislation. The agency has now demanded the industry clean itself up or face legal consequences.

“It is unclear whether the housing companies are ignorant of the laws and current legal situation or if they simply ignore it. It is very serious,” Gunnar Larsson, director general of the agency and the the Consumer Ombudsman (Konsumentsombudsmannen, KO), said in a statement on Tuesday.

“This implies that the entire industry shape up or we will be forced to take legal measures to resolve the problems,” he added.

About 7,000 self-contained homes are built in Sweden every year.

According to the agency, conditions should be fair and there should be a balance between consumer and the homebuilder. However, the agency’s review of the terms offered by Sweden’s 15 largest home builders showed that none of the companies live to these standards.

“It is deplorable,” said Mari Gremlin, an agency lawyer.

The agency highlighted the nine terms that are unfair and directly contrary to law. All the terms restricted consumer rights in different ways in relation to the home builders.

A common and illegal term is the appointment of the surveyor by the insurer. When a consumer buys a single-family home, it often includes faulty construction coverage. Switching can be expensive for the consumer.

After passing the final inspection, there are often some construction faults that exist. As such, consumers have the legal right to withhold the final installment to the firm to ensure their demands.

“However, there are conditions that say one must immediately pay the final sum,” noted Gremlin.

In some cases, the claim is valid for only seven days. By law, contracts should last up to two months after the fault has been detected.

In addition, 13 of the 15 companies have terms stating that prices will increase according to a delay index – regardless of who caused it.

“The consumer suffers, both in waiting for a delayed house and getting a price increase,” said Gremlin.

Kent Johansson, CEO of Älvsbyhus, one of the companies scrutinised and criticised by agency, could not explain why there are many gaps in the industry.

“Our agreements, and almost the entire industry’s, have been like this, for many years,” he said.

However, he pledged to follow through with the agency’s recommendations.

“We will try to find the points that concern us and we will simply make the changes that we believe that the Consumer Agency wants,” said Johansson.

The agency will follow up with the companies in the spring and review the terms.

“If they have not changed, we will demand that they do so. If they do not do it voluntarily, it may go to market court,” said Gremlin.

The Swedish Homeowners Association (Villaägarnas Riksförbund) recommends getting professional help when buying a house from a construction consultant or specialist lawyer.

“This is really bad. You cannot go in and buy a house and believe that the agreement presented under your nose is the most optimal for you,” said the association’s chef lawyer Ulf Stenberg.

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PROPERTY

Why buying property in Austria remains unaffordable for most

Buying a home in Austria is a dream for many international residents, but it remains out of reach for the average earner.

Published: 7 May 2024 12:30 CEST
Why buying property in Austria remains unaffordable for most

Many people living in Austria dream of one day owning a home, but despite recent drops in property prices and interest rates, this dream is still out of reach for many average earners. 

In Austria, it is recommended to not spend more than 40 percent of a monthly income on debt repayment.

But new analysis by tariff comparison portal durchblicker.at reveals that even a double-income household would need to spend around 60 percent of their income to afford a 90m² new-build apartment in Vienna.

While the government has created initiatives to improve the affordability, with attractive housing packages, fee reductions and eliminations of certain fees, such as the “Grundbucheintragsgebühr” (land register entry fee) and “Pfandrechtseintragungsgebühr” (mortgage registration fee) for properties up to a certain value, their impact has been limited.

Furthermore, the governments initiatives often overlook the specific needs of lower-income households and may benefit those who are already financially stable, leaving the average earner still struggling to afford a home, according to Der Standard.

READ ALSO: ‘Haushaltsversicherung’ – How does Austria’s home insurance work?

High prices, rates and strict lending criteria

One of the biggest barriers to owning a home in Austria is simply the sky-high property prices. Over the years, property prices have increased, making it more difficult for people with an average income to afford a place of their own. Even with recent minor dips in prices, they still remain high.

Another factor making owning a home challenging is the increase in interest rates in recent years. As a result, both existing variable-rate loans and newly obtained fixed-rate loans have become more expensive. Analysts expect the European Central Bank to cut interest rates by around 0.5 percent in the near future, but according to durchblicker’s calculations, this would initially only create a little relief for loan takers, where instead of around 60 percent, 55 percent of monthly household net income would be needed for debt repayment.

Another issue preventing many from realising their dream to buy a home is the difficulty in obtaining a mortgage. Since July 2022, stricter rules have applied in Austria for the granting of property loans. Loan applicants must have a deposit worth at least 20 percent of the value of their property to be granted a loan, according to the financial online platform Finanz.at. This means that even applicants with higher incomes may struggle to get their dream financed. 

Furthermore, many loan takers with variable-rate loans, especially those recently obtained, are facing significant challenges. The variable interest rates have increased significantly since the initiation of these loans, resulting in higher monthly repayments, reported Der Standard.

Few people can afford their own home in Austria, especially in Vienna. Photo by Christian Lendl on Unsplash

Experts suggests fixed rate loans and cooperative housing models

Andreas Ederer, Head of Banking at durchblicker.at, recommends loan takers with variable-rate loans to change to fixed-rate loans. He suggests that fixed-rate loans have become more attractive as they are currently cheaper than variable-rate loans, reported Kurier. 

Unlike fixed-rate loans, which have a steady interest rate throughout the loan term, variable-rate loans can change over time in response to shifts in market conditions or the economy.

Experts also suggest alternative models for increasing affordability. One idea is to create more opportunities for cooperative ownership with mandatory purchase options. This could offer a more affordable option where costs such as maintenance and taxes are shared. According to Der Standard, cooperatives also often have access to loans with better terms.

READ NEXT: How can I move into affordable cooperative housing in Vienna?

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