August 27, 2019

New debt brake rules make the structure of credit expansion healthier – Debt Consolidation

Mortgage lending may continue to grow dynamically but in a more healthy structure in the future, thanks to the MNB’s new debt brake rules, and fixed-rate residents can calculate their repayments more safely in the long term, emphasized Anikó Szombati, Managing Director of

He drew attention to the fact that four-fifths of new home lenders are already asking for a fixed rate of interest, and last year they took on a much lower rate of repayment than the central bank’s variable-rate loan.

Amendment to its regulation to prevent over-indebtedness


The MNB may announce an amendment to its regulation to prevent over-indebtedness of retail customers in August, after the European Central Bank has commented on it. The regulation, which will come into effect on October 1, sets new additional rules on maximum installments (JTM) that can be paid in proportion to customer income, he recalled.

He added that these rules encourage new home mortgage customers to take out fixed mortgages with a “concrete repayment installment”. Those who fix their repayment installments for 10 years or for the entire term of the loan can spend the same amount of their income on loan repayment as before: up to half of the monthly net income of HUF 400,000, 60 percent – said Szombati.

Fixed rates for a shorter period of time


“Forint mortgage customers with riskier floating rates or fixed rates for a shorter period of time can now rely on having sufficient income reserves if interest rates start to rise,” he said. Their maximum monthly installment installments may be a lower proportion of their income than before: 25 per cent for fixations of less than 5 years and 35 per cent for those between 5 and 10 years.
As a result of the MNB’s action, housing loans will continue to expand at a dynamic pace similar to last year. The move does not affect the volume but the quality of the loans and makes them healthier and more predictable, the managing director emphasized.
Last year, the average JTM rate for Hungarian household loans was only 27 percent. Thus, domestic customers, according to Anikó Szombati, have been cautious in applying for mortgages, mainly at lower levels than the new central bank JTM limits.

The central bank’s move to boost fixed interest rates is also in line with the intention of this year’s new home lenders, with more than four-fifths borrowing at a fixed rate in May 2018, down from just 40 percent a year ago.
According to Anikó Szombati, the MNB would like to further encourage safe credit expansion, and reminded that nearly 60 percent of all home mortgage contracts still have a fixed interest rate of less than one year due to older floating rate schemes. Many customers would therefore consider converting their old loan to a central bank professional, either through a contract modification or a fixed rate loan, such as a qualified consumer-friendly home loan.

The new debt brake rules


Are part of the MNB’s earlier set of measures to spread safe fixed-rate housing loans. In addition to consumer-friendly home loans and the MNB’s mortgage bond purchase program, the Managing Director listed that credit institutions are required to raise the necessary funds for 15% of their home loans through long-term mortgage bonds.
Changes in interest rates over the past decade prove that for typically 15-year home loans, it is hardly possible to calculate with no change in installments – he stressed. “However, whoever chooses a fixed interest rate does not change their monthly repayment during the fixed rate fixation period,” he added.

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