Banks to raise interest rates of subsidized home loans


The Hungarian Banking Association has proposed that the maximum interest rate on state-subsidized home loans should be raised to 130% of government securities yields plus 3 percentage points, business daily Világgazdaság said on Monday, citing a memorandum signed by the Banking Association and the National Economy Ministry.

A decree currently in effect stipulates that banks can offer subsidized home loans at 3 percentage points above government securities yields, which experts say is too low to be worthwhile for banks. The paper has learnt that banks have not yet signed any contracts based on the government decree of last December.

With the maximum interest rate proposed by the banking association, banks could offer subsidized home loans with a transaction interest rate of around 12% for a 12-month interest rate period compared to just above 10% under the current regulation.

Even with the raised interest rate ceiling, borrowers could still pay only 6-8% interest on the subsidized forint loan due to the interest rate subsidy, under which the state pays 50-70% of the interest in the first year. This rate competes with the interest rate of Swiss franc loans, while there is no interest rate risk, the paper said, adding that monthly payments will rise later on as subsidies decrease.


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