2024-10-08 06:22:09
The BNB will now also monitor whether the purchase of property is done with a consumer loan and how fluctuations in the prices of mortgaged properties are assessed
Banks are also considering new schemes for repayment of problem loans in addition to refinancing
After the boom in mortgage loans, which in the last year grew by 25% and reached a total of BGN 22 billion, the BNB introduced new mandatory rules. Central bankers asked financial institutions to finance a maximum of 85% of the purchase of a property, shorten the repayment period to 30 years and require the person who will repay the loan not to devote more than half of his monthly income to this purpose.
The rules, which are already in force from October 1, only apply to newly issued loans and will not affect old mortgage credit contracts.
According to the governor of the BNB, Dimitar Radev, the goals of this measure are twofold – to reduce the credit expansion and to protect people who buy property not with saved money from excessive indebtedness.
The criteria were not chosen at random. Four months ago, the BNB introduced 6 indicators by which it already evaluates the credit activity of banks, but at that time refrained from recording specific quantitative restrictions. And he warned the bankers that he would monitor the ratio between the amount of the loan and the value of the collateral, i.e. what percentage of the home is financed by the bank and how much is the co-financing.
The analysis of the results of this control showed that indeed
in the mainstream
case the bank’s money covers 80-85%
of the value of the property,
provided as collateral. However, he also showed that 6-7% of new loans are financed with 90% of the value of the collateral and as many as 27% – over 80%.
The interpretation of these data shows that already at the entrance there are applicants with minimal own financing, who thus transfer the payment, and therefore the risks, to the bank.
Checks also showed that some property purchases were financed with a mortgage that formally met the conditions, but because its size was not sufficient, the treasuries issued a consumer loan to this money to procure the missing amount. After this was established, the central bank began to monitor the granting of the so-called related loans.
Are banks ready to comply with the new rules? How will they affect people who will ask for loans? A check of “24 hours” found that their introduction is not a surprise for most banks. The addition to the first mandatory criterion – for the amount of the collateral, is to apply a unified methodology for the assessment of residential properties, which will serve as a guarantee for the return of the loaned money. The funding rate, which currently fluctuates widely, is forecast to reduce this shear. The difficulty in covering it, according to bankers, is to predict the movement in collateral prices because there have been properties whose value is expected to rise and may approach 85%, but for others it may fall below 50%.
Compliance with this criterion is expected to tighten the rules for granting consumer loans, which are used to buy a cheaper property, or to add to a more expensive one together with the mortgage. For this purpose, when assessing the income, not only that of the formal recipient will be assessed, but also that of his household, taking into account not only the number and amount of income of those working in it, but also of the members supported by the borrower.
Thus, in addition to the mandatory income ratio of twice the monthly contribution, bankers also make a decision by examining how long the candidate has worked at his current job, what are the forecasts for the development of the sector, as well as data on general unemployment and inflation for five years ahead. It was no longer enough to get automatic approval if you showed an income of BGN 2,000 and the calculated contribution was BGN 1,000. In the assessment
it also counts what the number is
of household members,
who depend on this income, as well as future higher costs associated with them, for example with grown children who are now under 18 years of age.
The shortening of the term for granting the loan – to 30 years, 5 years shorter than the usual banking practice for a maximum term, and aims to further minimize the risks with long-term forecasting and to have the most reliable forecast for property prices .
Data so far shows that for the first quarter of 2024, the maximum repayment term has extended by 2 years to 25 due to rising house prices. Since this term is below the bar set by the BNB, the influence of this criterion will for now be indirect – through higher monthly contributions and from there – to a higher required income.
With the new rules, with a maximum mortgage loan amount of BGN 200,000, an average repayment term of 30 years and an interest rate of 2.89%, the monthly payment becomes BGN 830, which means that candidates with income at least BGN 1,800
However, this is the first step, the applicant may not receive the loan if the property offered as a pledge does not receive an assessment of at least BGN 170,000 and the applicant does not have at least BGN 30,000 of own funds.
The combination of the three criteria – a shorter loan repayment term, limiting bank financing to 80% and the requirement that the ratio of income to monthly payment be a minimum of 2:1 should cut off applicants who would have difficulty servicing their loan .
Banks are cutting
half the candidates
Nearly 50% of the requests for a mortgage loan remained unsatisfied by the banks. This is shown by BNB data for the first quarter of the year. The total amount of the requested financing was BGN 3.5 billion, and the approved and received amount was BGN 1.8 billion.
Financiers are adamant that the new mandatory rules introduced by the BNB will cut off even more applicants for loans at the entrance. Forecasts are for at least 5% more refusals, which will reduce the pressure for loans by at least BGN 500 million.
To partially offset the shrinking of mortgage loans, some banks are considering offering new, flexible repayment schemes for non-performing loans in addition to rescheduling installments or refinancing the entire loan. That’s why they advise each of their clients in case of difficulty not to wait until they have a few installments, but to immediately contact the bank’s consultants.
When announcing the criteria, the BNB recalled that the new requirements complement the capital buffers applied so far, which are one of the highest in Europe. Despite these decisions, the central bank explicitly emphasizes that the banks are well capitalized and highly liquid, the level of non-performing loans is low and yields are high, which means that the property market does not yet show signs of overheating.