The German Federal Court has ruled to allow people to annul mortgages they have bought from doorstep salesmen, and reclaim paid interest.
The sales practice was common in the former East Germany shortly after reunification and consumers were allowed to back out of unsolicited deals made on the doorstep if they were not tied to property.
German consumer groups had taken the case to the European Court of Justice, claiming the exception was unfair. The European Court ruled in their favour, and now the German court has agreed and ruled there is no time limit on pulling out of the deals.
Piers Brown, an analyst at Commerzbank Securities, said: ‘As it stands, there is a facility to cancel the loan agreement ‘ the customer pays back the principal and the bank pays back the interest paid. The point is that it doesn’t necessarily make sense to do that. Clients would still need to finance their property and get another mortgage. There was nothing wrong with the mortgages, it was that not all the banks made the customer aware there was a cooling off period. Also when the mortgage was started, the value assessments of the properties were in many cases far too high.’
The bank most affected by this decision, HVB, is Germany’s second-largest bank. With an estimated £8bn exposure in doorstep mortgages, HVB saw its share price fall by 3.7% on the news.