An increasing number of Hungarians are facing the scary reality that the total amount of their foreign currency-denominated loans exceed the value of the real estate covering the debt, according to recently published data from the National Bank of Hungary (MNB).
The combination of declining property prices and the weakening of the forint has clearly resulted in a deteriorating situation for mortgage loan owners, signalling increasing dangers of a possible loan bomb explosion. According to the data provided by the MNB, 56% of the entire housing loan portfolio denominated in foreign currency has a loan-to-value ratio (LTV ratio) higher than 90 percent. An LTV ratio of 100% means that the property value covers the amount of the loan, while a ratio above 100% means that the loan is not covered totally by real estate.
The number of "dangerous" mortgage loans that need to be watched closely by banks has increased over the past 12 months, as in March 2011, only 34% of mortgage loans had a 90% or higher LTV ratio. By September 2011, this figure jumped to 47%, and reached 56% in another six months. By Q1 2012, out of the HUF 2,050 billion total residential mortgage amount, HUF 1,155 billion had an LTV ratio higher than 90%, and another 10% of mortgage loans had an LTV ratio between 80-90%.
In the 12 months between the end of March 2011 and 2012, the number of foreign currency-denominated mortgage loans with a loan-to-value ratio over 90% grew 65% due to the depreciation of the Hungarian forint and falling property prices.
Since the beginning of the subprime mortgage crisis back in 2008, housing prices fell by 13% in Hungary, while the Hungarian forint depreciated strongly against the euro and the Swiss franc – the latter being the flagship currency of the mortgage loan boom in Hungary before 2008.
These factors, aided by an unemployment rate of well over 10%, worsened the outlook of mortgage loan owners, and their situation could deteriorate even more in the near term. Real estate prices are more than likely to fall again this year, and the forint exchange rate is still highly volatile due to the eurozone’s financial crisis and the hard-to-follow negotiations between the Hungarian government and the IMF-European Union-ECB trio. KK