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MNB publishes amended debt-to-income rules

The National Bank of Hungary (MNB) will tighten its debt-to-income (DTI) ratio rules for mortgage loans to help reduce householdsʼ exposure to interest rate risk, according to the respective central bank decree published in Tuesdayʼs edition of official gazette Magyar Közlöny.   

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.

The amended rules, taking effect from October 1 this year, aim to provide an incentive for home loans with fixed interest, or with interest fixed for long interest periods, by introducing new, lower payment-to-income (PTI) caps on floating-rate mortgages or those with interest fixed for shorter periods. The caps remain unchanged for other loans, noted state news agency MTI.

As before, the maximum PTI will be higher for those with higher income, but the dividing line will rise to HUF 500,000 monthly net income on July 1, 2019, up from the present HUF 400,000,  unchanged since the debt rules came into force in 2015.

In a step to reduce the interest risk on already outstanding loans, the debt-brake rules should not be applied in the case of contract amendments or refinancing provided the interest period of the new loan is not shorter, the decree noted.

From October 1, the current limits on PTI ratios on forint mortgages - of 50% for monthly net income of less than HUF 400,000, and 60% for higher income - will apply only to forint loans with interest fixed for at least 10 years or until the loan expires.

The maximum PTI ratio will drop to 35% for forint mortgages with interest fixed for periods between 5 and 10 years, while the cap will be 25% for interest periods below 5 years. For those with a monthly income exceeding HUF 400,000, the limits will be 60%, 40% and 30%, respectively.

Similarly, the maximum PTI of euro-denominated mortgages will remain 25% in the lower income category if the interest is fixed for at least a 5-year period. The limit will drop, however, to 15% if the interest is fixed for less than 5 years or on floating-rate loans.

The earlier 10% limit on FX mortgages denominated in a currency other than euros will apply only for loans with interest fixed for at least 5 years, and will be 5% for such loans if they have a floating rate or a shorter interest period. The caps will be 5 percentage points higher for those in the higher income category for both euro-denominated and other FX mortgages.

As reported in June, banks have welcomed the tighter rules on mortgage lending.

"The banking sector welcomes all regulatory efforts that reinforce predictability for consumers when they take financial decisions," MBSz Secretary General Levente Kovács told MTI at the time.