Consumer protection rip-off

The protection of consumers is a popular stalking-horse to protect someone's own business. The latest example is by Vuokraturva Oy, who is a rental apartment agent, and has been very visible in the media recently, possibly because they have realized how gullible journalists can be utilized for lobbying public policies (like when claiming that renting an apartment is cheaper than buying one. Yes, it is, if you don't count in that some part of the monthly mortgage payments is actually saving your own capital, while in rent there's none - cash flow isn't the bottom line).

Timo Metsola, the chairman of board, says that it should be forbidden for banks to grant mortgages to house buyers based on short-term rates, i.e. mortgages where the reference rate is 3 or 12 month Euribor. Instead, reference rates of at least 10 years should be mandatory, because this would cut down speculation and bring stability to the market.

Yeah, stability. For whom? Now, why is a rental apartment agent and owner so keen to protect the interests of consumers who are buying homes? Well, of course, there's money to be made: if those who buy their own home are forced to commit to 10-year rates - which are typically higher than short-term rates - then owning rental apartments, and the money-making chances of rental apartment agency business, are more lucrative. You see, the limitation would apply to people who buy their own homes, but it would of course not apply to investors who buy apartments for leasing out.

12 month Euribor, which is the most typical reference rate for Finnish mortgages, is currently around 1,4 %. It's been a bit lower and it's been a considerably higher, but it's almost all the time lower than the 10 year rate, which has since mid-90's been between 4% and 6 %. During this time, the 12 month Euribor has only twice peaked over 5 % but most of the time stayed below 4 %.

Now, if people who buy their own homes are not allowed to mortgage on short rates, what does it mean? It means that the investors can take the rate risk. Also, it means that the cost of investment for professional investors is lower than for people who buy their own homes. The investors can make more money. Home buyers pay more. How convenient.

So there's a good reason why the consumers should be protected: kill the competition that comes from individual home owners. Lesson to be learned: a lot of things are said to be to protect us poor consumers - and in reality, the meaning is to rip us off.