MNB: Borrowing households’ financial positions ‘appropriate’

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About 15% of Hungarian households with loans are vulnerable to financial risk, while the ratio is 18% among households with mortgages, a survey carried out by the National Bank of Hungary (MNB) concluded, as reported by state news wire MTI.

The MNB summarized the findings of the survey in its biannual Financial Stability Report released on Wednesday. The survey was conducted among 1,500 borrowing households in spring 2017, MTI reported.

The MNB defines households as vulnerable if their monthly income is below the sum of taxes, fees and debt servicing payable plus living costs, and if their liquid assets are insufficient to cover the gap for a given number of months.

About half of households with loans are able to pay for their expenses with careful planning and 43% regularly have excess income over expenses, the MNB found, concluding that the financial position of the borrowing households in general is "appropriate." Only 2% of households live on a day-to-day basis, the survey showed.

The MNB said that only 3-8% of households could be termed as excessively indebted. However, 22% of respondents said that they would not be able to continue servicing debt without a clear change in living standards if all earners in the households lost their jobs. Some 8.5% of households would be able to go on servicing debt for more than half a year.

In the Financial Stability Report, the MNB noted again that the high ratio of floating-rate loans in the current low interest rate environment poses a risk of rising servicing costs for households. It added that the risk is even bigger as more vulnerable households tend to take out such loans.

The ratio of floating-rate loans was 42% among newly issued home loans in Q2 and was 51% if home saving banks selling specialty products are excluded, the MNB reported.

The ratio of home loans with interest rates fixed for more than 10 years was only 6%. One reason for this is the steep Hungarian interest rate curve. However, Hungarian banks tend to apply higher margins on fixed-rate loans than on floating-rate loans, the report noted. The interest rate margin is below 350 basis points for 67% of new floating-rate home loan outlays, while only 35% of loans with interest fixed for over one year have a similar margin.

The report said that the expansion of the MNBʼs certified consumer-friendly home loans and the development of the mortgage bond market could ease the problem.

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