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Central bank to tighten mortgage lending conditions

MNB

The National Bank of Hungary (MNB) plans to tighten its debt-to-income ratio rules for mortgage loans to help reduce the exposure to interest rate risks of households, according to a communiqué from the central bank published Monday.  

Starting October 1, 2018, in the case of the borrowerʼs regular monthly net income being below HUF 400,000, the MNB plans to cap monthly repayment installments for new loans at 25% of income for mortgages of less than 5 yearsʼ maturity.

For mortgages with a maturity of between 5 and 10 years, and for those with maturities longer than 10 years or fixed interest rate schemes, the installment caps would be 35% and 50%, respectively.   

For borrowers with monthly net income above HUF 400,000, the three benchmark limits would be 30%, 40% and 60%, respectively.

The central bank is endeavoring to avoid a repeat of the credit catastrophe that preceded the last major financial crisis by reducing the proportion of variable-interest loans and pushing borrowers towards fixed-interest credit, noted online news portal index.hu.

The MNB is discussing the tightening of the rules with market players, while the draft regulation is currently subject to comments by the European Central Bank (ECB). The changes may enter into effect once this process is successfully completed.

In light of increases in both nominal and real wages in recent years, index.hu notes, the draft allows for the higher cap on repayments to be applied from July 1, 2019, in the case of regular monthly income of HUF 500,000 or more.

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