Hungarian banks tell government they cannot support mortgage rate freeze

Hungarian banks tell government they cannot support mortgage rate freeze
Hungarian borrowers with variable interest rate home loans will save at least HUF30bn from the mortgage rate cap.
By bne IntelliNews January 4, 2022

Hungarian banks have told the country's radical rightwing government that it cannot afford to freeze mortgage interest rates to clients until next year's general election at a time when the Hungarian National Bank has rapidly raised base rates and indicated further rises.

"The Banking Association cannot support the temporary interest rate freeze, to the detriment of the Hungarian banking sector, for clients who decided to take out riskier, floating-rate loans in spite of several warnings to the contrary," it said in a statement.

It noted that Hungarian lenders, in cooperation with the National Bank (MNB), have in recent years offered to switch clients' floating-rate credit to fixed-rate loans, drawing attention to the benefits of fixed-rate loans in public forums and among their clients.

The association pointed to the banking sector's "contribution to pandemic defence" in the form of paying a sectoral tax and participating in a repayment moratorium that extended for a longer period than any other one in Europe.

The MNB began a tightening cycle in June, raising the base rate from a record low 0.6% to 2.4%. Since November, the one-week deposit, at 4%, became the main tool for setting monetary policy.  MNB governor Gyorgy Matolcsy confirmed that the one-week depo rate will catch up to the base rate and flagged further monetary tightening in 2022.

Prime Minister Viktor Orban announced the mortgage rate cap just days before Christmas, citing higher inflation and rising interest rates. The government decided to fix variable-rate home loans at the October 2021 rates until mid-2022, or after the elections, leaving HUF30bn (€81.5mn) in the pockets of retail debtors.

Around half a million Hungarians have floating-rate mortgages. Without the measure, accelerated rate rises from October could have added 23%, or an average HUF 11,000, to borrowers' monthly instalments.

The share of variable-rate mortgage loans have been declining over the years. The National Bank estimates that 40% of the total outstanding mortgage portfolio, some 466,000 contracts, could be repriced within a year, when the government’s price fixing expires.

More than half of debtors could face a 7% increase in their monthly instalments if the base rate rises 200bp.

The government has instructed banks that they must tell their customers in plain language that the government is to thank for freezing mortgage rates and exactly how much they stand to gain from the measure, local media reported on January 3. The uniform text was formulated by the office of Cabinet Chief Antal Rogan, who also oversees government communication.

The mortgage cap is part of long list of populist measures before the 2022 elections. The government extended the loan foreclosure moratorium until mid-2022 and froze fuel prices in mid-November for three months with an option to extend it further.

The Orban cabinet faced with a unified opposition has unleashed an unprecedented spending binge before the elections. Families are set to receive HUF600bn in tax rebate in February and the elderly will get an extra month of pensions worth HUF200bn.

The 19% rise in minimum wage and the tax exemption for under-25s came into effect from January. The six months extra wage for armed personnel will cost the budget HUF175bn.