Budapest, 22 August 2018 – The modification of the debt cap rules became official by publishing the amending MNB Decree in the Hungarian Gazette. By the amendments applicable from the 1st of October, the MNB further encourages the expansion of mortgage lending with longer interest rate fixation periods, with the aim of supporting predictable monthly instalments of housing loans and healthy structure and sustainability of household lending.
The Financial Stability Board of the Magyar Nemzeti Bank – after concluding consultations with market participants and the European Central Bank – has adopted the amended MNB Decree regulating the payment-to-income ratio (PTI), which has just been published in the Hungarian Gazette.
The MNB – in accordance with its former communication – has already been supporting the increase in the share of fixed-interest loans with longer interest rate fixation periods using multiple instruments, with the aim of mitigating households’ exposure to interest rate risk and of reducing the ratio of less stable floating-rate loans. With this objective in mind, the MNB decided to modify the rules on the payment-to-income ratio to differentiate based on the length of interest rate fixation periods.
Because of the 15-20-year-long duration of housing loans, it is important to ensure that the possible future changes in interest rates in the long term do not generate payment difficulties for households, or in a worse scenario their insolvency. Housing loans with floating-interest rates or shorter-term interest rate fixation periods carry the risk of material rise in the monthly instalments of households should adverse changes in interest rates occur.
Accordingly, from 1 October 2018, the new PTI rules will prescribe the use of lower PTI limits in case of housing loans with duration longer than five years depending on the interest rate fixation period. Therefore, the modified rules also ensure that households shall have adequate income buffers also in case of an adverse change in interest rates. Borrowers with a higher level of income will still be allowed to borrow with higher monthly instalments due to their higher repayment capacity. From 1 July 2019, considering also to the increase in nominal and real wages in recent years, the Decree allows to undertake higher instalments at or above HUF 500,000 of monthly income instead of the current HUF 400,000.
New PTI rules on forint mortgage loans from 1 October 2018
|
Monthly net income |
Interest rate fixation period |
||
|
Variable interest rate or fixed for less than five years |
At least five years, but less than ten years |
At least ten years or fixed for the whole term |
|
|
Below HUF 400,000 (HUF 500,000 from 1 July 2019) |
25% |
35% |
50% |
|
At least HUF 400,000 (HUF 500,000 from 1 July 2019) |
30% |
40% |
60% |
The MNB Decree also supports the mitigation of interest rate risk of loans already disbursed, as the debt cap rules shall not be applied in case of contract modification or loan refinancing if the interest rate fixation period of the new loan does not become shorter.
The MNB offers guidance related to issues in connection with the usage of the Decree in a “Questions and Answers” format on its website to support a common market practice.
Magyar Nemzeti Bank