National Bank will tighten its rules on mortgage lending in October. Banks will no longer be able to provide mortgages at 100% of the property’s collateral (LTV). The maximum mortgage limit will be from 95% of the value of the secured property from October to 90%. Significantly loose standards for mortgage lending are a risk under the Financial Stability Report. The measure also applies to build societies. Stricter mortgage rules will not affect the market.

Thus, since October, the NB has set a 10% credit limit for loans of 85 to 95 percent of the value of the property. From April 2017, the limit of 15 percent of loan loans will be 80 to 90 percent of the value of the property.

Loose credit standards are a risk to financial stability

Loose credit standards are a risk to financial stability

“The combination of exceptionally low-interest rates and easy access to housing loans creates the conditions for growth in residential property prices above those underlying fundamentals,” the NB said.

Although the central bank does not rate the development of the real estate and housing market as an acute overheating of the market, it considers credit standards to be considerably relaxed and sees higher risks for some institutions.

Already last year, the central bank issued a recommendation that the share of housing loans with a collateralized real estate value of 90 to 100 percent should not exceed ten percent of the total volume of new loans for the quarter. “Institutions are mostly implementing the recommendations,” said Governor at a press conference. However, some institutions, according to him, exceed the recommendations, not only banks but also building societies.

Stricter mortgage rules will not affect the market

Stricter mortgage rules will not affect the market

Banks reported that they provide 100% mortgages to a limited extent and thus do not have the problem to adapt to the NB’s rules. “If the NB introduces stricter rules, we will, of course, adhere to them. Our portfolio would not significantly influence this step, given its structure,” said. One hundred percent mortgages have a minimal share in the Bank’s portfolio, the vast majority of mortgages cover 70 to 80 percent of the value of the property. Similarly, the share of these mortgages in Tarzan is marginal. According to bank spokesman Tomáš Zavoral, they account for about three percent of the mortgages provided.

The NB further informed that it would strive, in line with EU recommendations, for a legal basis for the powers to set risk parameters for housing loans. He is currently enforcing his recommendations as part of his supervisory activities. However, she would like to have the power best determined by law. An amendment to the Act on Banks or an amendment to the Consumer Credit Act, which has not yet been approved, is considered.

Last year, banks provided record-breaking nearly 102,000 mortgages for a total of 184.3 billion crowns. In April, the average interest rate on mortgages fell further to a record low of 1.94 percent.