MNB supports housing loan opportunities of young first-time home buyers with lower down payment requirements

Budapest, 18 December 2023 - Due to the dynamic increase in house prices in recent years, the down payment required to take out a housing loan has also been showing a rapid increase. Consequently, the housing opportunities of young first-time home buyers, who typically have little savings, may be excessively limited by the current regulations. Considering the potentially lower credit risk of these customers, the MNB will introduce a higher loan-to-value limit of 90 percent for first-time home buyers from 1 January 2024.

The MNB has been applying its borrower-based measures (BBM) since 2015; these limit the maximum installment and the maximum loan amount that can be afforded based on the borrowers' income (debt-service-to-income-ratio - DSTI) and, in the case of collateralized loans, the market value of the collateral (loan-to-value-ration – LTV). In recent years, the regulation has ensured the high quality of bank loan portfolios and prevented the over-indebtedness of households.

In parallel with the increase in house prices in recent years, the down payment required for taking up a housing loan has also increased significantly, which has affected young first-time home buyers with typically little savings particularly negatively. Accordingly, in recent years, in case of young housing loan borrowers an increased collateral-stretch could be identified, which indicates that it is substantially more difficult for them to meet the down payment requirements compared to other debtors. The credit risk of young first-time home buyers may be lower due to their home-buying loan purpose and their higher-than-average income growth potential, which is confirmed by several international studies. In view of this, different down payment requirements are applied to them in several European countries.

Based on the potentially lower credit risk of young first-time home buyers and the easing of credit and housing market risks seen in recent quarters, also taking into account numerous international regulatory practices, the MNB has decided in favor of a risk-proportional modification of the BBM rules for first-time home buyers. Based on the amendment, if the criteria for first-time home buyers are met, the maximum LTV limit will increase to 90 percent in the case of loans secured by a mortgage on real estate as collateral and financial leases, as well. The preferential down payment requirement applies to customers under the age of 41 who do not currently own and have never owned at least 50 percent in any residential unit. If there is a legal usufructuary right on the affected properties (e.g., through inheritance), this benefit can still be applied to debtors. In the case of several debtors, each of the co-debtors must fulfill these conditions.

With the amendment, the minimum down payment required by the central bank will be reduced from the previous 20 percent to 10 percent for customers who meet the conditions. As a result, the minimum down payment required for the purchase of a home by many young first-time home buyers can be significantly reduced, shortening the savings period necessary to set aside the down payment by years even. The exact level of down payment required for borrowing also depends on banks' individual risk-taking; therefore, they can set stricter requirements than the legal limits.

LTV limits for taking out mortgages and leases

Source: MNB

The detailed rules for the application of the higher LTV limit for first-time homebuyers are laid down in the amendment of the MNB Decree 32/2014 (IX. 10.) on the regulation of the debt service-to-income ratio and the loan-to-value ratio that will come into force on 1 January 2024 and the related collection of Frequently Asked Questions.