From October 2018, the MNB will revise the rules on the amount of credit that can be drawn. The change is particularly sensitive to those who prefer riskier, variable-rate borrowing for lower interest rates (and lower monthly installments). Here’s a concrete example of what this means for a loan.
There are two factors that influence the amount of home loan
That can be taken up: firstly, the applicant’s reported monthly net income, and secondly, the market value of the property offered as collateral. Based on these two aspects, the MNB has developed a set of rules that limit the amount of credit that banks can offer.
Which governs the amount of credit available on the basis of income . Under current regulations, the maximum amount of credit that can be taken is a monthly installment of less than 50% of your reported monthly net earnings (60% for monthly payments above $ 400,000). Of course, if couples borrow together, the total income of the two counts when determining the credit line.
Our example is a couple who can earn between $ 195 and $ 195,000, so under the current rules, 50% of their income ($ 390,000), or $ 195,000, is the repayment limit. With a 20-year maturity, the maximum amount that banks can offer is approx. HUF 35 million, which is possible only with a 3-6 month variable rate home loan (the amount offered on fixed rate loans is significantly lower). Because variable rate loans have the lowest interest rates , they also have the smallest installment, so if your couple wants to get the maximum amount, they will have to choose a higher risk loan scheme. However, if the interest rate on their loans increases by only 1-2% in the future, the monthly repayment installment will jump to over two hundred thousand forints, which means a significant monthly additional expenditure.
The following changes will be made to the eligibility policy:
In the case of a variable rate home loan, the monthly repayment may not exceed 25% of the declared net salary (30% in the case of income over $ 400,000), ie the current credit line shall be halved. In the case of a 5-year fixed rate loan, the installment can be 35% of the income (over 40,000 HUF, 40%). And for a 10-year fixed rate loan, the 50% limit remains (60% above $ 400,000).
So, we have to choose a fixed rate loan facility for at least 10 years in order to get the highest amount that we have under today’s regulations. At the same time, those who opt for a variable rate loan can only claim half the amount they used to. For our family in the above example ($ 390,000 total income, with a 20-year maturity), the amount of home loan available from October is as follows: whereas previously, the riskier variable rate loan was approx. They have been able to raise $ 35 million, from October onwards they will have only $ 17.5 million. Today, with a 5-year fixed rate loan, approx. They were able to claim 30.6 million forints, while this fall will be only 19.4 million forints. The 10-year fixed rate loan retains the previous amount, which is approx. HUF 27.8 million. The amounts in this example vary slightly from bank to bank, but do not affect the substance of the example.
The October changes concern the first aspect
The point? It is not true, therefore, that the summary statement that only half the size of the mortgage loan will be available from autumn, as it applies only to high-risk, variable-rate loans. However, if you want to get the maximum amount of credit, you will be forced to opt for a fixed interest rate loan from October to 10 years , which will give you only 16% less credit than under the current rules.
By taking action, the MNB is, in effect, forcing those who want to use the maximum credit line to be more careful . However, this also means that with this decision we are forced to choose a higher interest rate loan already, so the amount to be paid is higher than for variable rate loans (banks now offer 2-3% higher interest rates on 10-year fixed rates). interest rate loans as floating rate loans. The question is whether interest rates would rise to such an extent in the coming years.)
Let’s also keep in mind that although current regulations require a 50% limit
On the ratio of certified monthly income to installments, in practice, very few banks allow such a installment . Most domestic banks have stricter borrowing rules than the MNB, and the limit is usually set at 40-45%.
What is causing the MNB to introduce further tightening of its borrowing system now? During the crisis of 2008, a significant part of the country’s population was hit by Swiss franc-denominated home loans. Therefore, the MNB intends to do its utmost to prevent a similar situation from occurring. Now the risk is not so much the exchange rate, but rather the rise in interest rates, because after a long period of stagnation interest rates have started to appreciate. It is not the central bank base rate that matters, but the Budapest interbank borrowing offered rate and government bond yields. And interest rate hikes pose a serious risk to larger lenders, and with the new rule coming into effect in October, the MNB will prevent more unpredictable and more serious mortgages from being borrowed and the population more likely to have more secure fixed-term loans. to her.