Bank mortgages received further regulation.
December 8, 2019
Banks expect the CzheN bank to tighten mortgage lending in connection with the planned publication of the Financial Stability Report. The plan should contain restrictions on the amount of the repayment and the loan in proportion to the applicant’s income.
This restriction will come alongside the current rules, where the maximum amount of provided funds has been limited for a relatively long time in relation to the value of the collateral property. However, the specific form of the measure is not yet clear.
For some time, the CzheN bank has promised further restrictions on mortgage approval to people who do not prove to have a sufficiently high income – given the amount of the mortgage they apply for. Banks expected to have limited opportunities to lend to people whose repayments account for more than 40 percent of their monthly net income.
At the same time, the total amount of the mortgage is more than eight times the annual net income. As a result, the reality is slightly milder, but the CzheN bank was not so strict in the end.
45 percent of monthly income and nine times annual income
As a result, the new mortgage limits are set so that the monthly repayment may not exceed 45 percent of the applicant’s net monthly income. And the total amount of the mortgage should not be more than nine times the annual net income of the mortgage applicant. Of course, the previous restrictions on the value of the mortgaged property still apply.
The new conditions will affect quite a lot of people
Even 30 percent of those who have a mortgage at Spenda FriR would not reach the mortgage under the current conditions. With bank clients, the situation is somewhat better, but even so, about twenty percent of current clients with mortgages already approved would not have reached the new mortgage.
A narrower view is offered by a narrow survey, where we would only look at clients who received a mortgage last year – that is, after the introduction of the first limit on the value of the property. Of these clients, only about a tenth of the current system would not have passed through, which is no longer such an alarming rate.
Just recall that, around a year and a half ago, banks were advised not to provide mortgages above 90 percent of the collateral value. And to provide only 15 percent of all mortgages between 80 and 90 percent of the value of the collateral.
Exception for five percent
The CzheN bank has allowed five percent of mortgage applicants to remain above this limit. For these five percent of applicants, the limits can be exceeded in terms of both monthly and annual income.
This means that, in fact, of all those who received the mortgage last year, only about five percent of applicants would fail. Nor would they be in an unsolvable situation.
Banks already offer the possibility to apply for a mortgage, for example, together with parents. In a way that allows parents’ property to break out of debt quite soon after the start of repayment of the mortgage.
Only new mortgages are limited
As expected, the current restrictions will only apply to new applicants for a new mortgage. This means that they do not apply to current clients – at the moment when they need to apply for a mortgage refinancing with another bank where they can get lower and more advantageous interest rates. In this case, the new restrictions are not relevant at all.
Will the CNB teach us to save on housing in advance?
The CzheN bank is taking its restrictive measures for several reasons. The main reason, of course, is to protect the banks she is in charge of. It supervises them and also has to protect them against bankruptcy, within the limits allowed by law.
The protection in the form of maximum repayment limits and the total amount of the mortgage is that if worse economic times occurred and households would have a relatively reduced income or lost their regular income from employment, banks would be at risk of default on a large part of their clients.
And this could not only weaken them, but also lay down in terms of liquidity.
However, the measure also protects households themselves. It is to teach them that it is necessary to think about housing at a young age and to save on it. Parents should learn to save their children from their early childhood.
As it turns out, children will need more and more money in advance. The bonus of this system is that if people are forced to save something for housing first, then they should not have a problem even with savings to repay the mortgage.