Macro analysts are sure that the Monetary Council will raise the base rate by another 100 basis points to 11.75 percent on Tuesday, and then on Thursday, in accordance with this, the same tightening will come in the case of the one-week deposit rate. This is bad news for essentially all loans, but especially from the point of view of interest rates on loans with variable interest rates within a year.
In line with the interest rate hikes that have already taken place and market expectations for further monetary tightening, interbank interest rates are also showing a steady rise. As for the reference value of loans with variable interest rates, the interbank interest rate in Budapest:
- the 3-month BUBOR from 1.61% to 12.36% in one year,
- the 6-month BUBOR from 1.66% to 13.13%,
- the 12-month BUBOR from 1.86% to 13.68%
rose. Based on this, the majority of home loans with variable interest rates would already have an interest rate of around 15%, compared to 4-5% a year ago.
In the case of loans with a September closing date, the BUBOR published today is now the decisive one, the CLXII of 2009. the law states that the value of the reference interest rate for mortgage loans with variable interest rates must be adjusted to the reference interest rate valid 2 days before the last working day of the month preceding the deadline. With the immediate and complete repricing of mortgage loans, there would hardly be a debtor who could get away with a single-digit increase in repayments compared to the situation a year ago. Moreover,
EVEN A LOAN WITH 5 YEARS REMAINING TERM WOULD HAVE A 28% HIGHER PAYMENT INSTALLMENT, THE AVERAGE WOULD BE AROUND 40%, AND FOR A LOAN WITH 20 YEARS REMAINING TERM, WE WOULD TALK ABOUT MORE THAN DOUBLE THE PAYMENT INSTALLMENT.
The longer the remaining term, theoretically, the greater the effect of the interest rate increase on the repayment installment. In most cases, the interest to be paid would be around 15% after the next business day. In practice, however, this gradually realized interest rate risk is borne by the banks and
INSTEAD OF AROUND 15% INTEREST, DEBTORS ARE NOW TYPICALLY PAYING AROUND 4-5% INTEREST, AND THE PAYMENT INCREASE ENCLOSED IN THE PAST YEAR IS ALL TWENTY. JUSTIFIED BY THE CURRENT INTERBANK INTEREST RATES.
Since January 1, the interest rate cap introduced by the government has put a barrier on the rise of interest rates and repayments for these mortgage loans. That is why it is not the current BUBOR of 12-14 percent, but the BUBOR valid on October 27 of last year, slightly over 2% (and the added fixed interest surcharge) that determines the evolution of the installments. For those whose due date fell between October 27 and January 1, from January 1, and for those whose due date is only this year, from the current due date. We wrote about the legal details of the interest stop here at the beginning of the year.
Based on MNB data, the outstanding capital debt of an average fixed-rate loan is around HUF 4.5 million, and the median remaining term is roughly 7 years. With an interest rate of BUBOR + 3 percentage points, the repayment installment of such a loan in August would be around HUF 88-91 thousand. On the other hand, due to the interest stop, such a debtor only pays HUF 64,000.
THEREFORE, IF THE GOVERNMENT SHOULD SUDDENLY IMPROVE THE INTEREST RATE STOP (THIS IS NOT EXPECTED THIS YEAR), THEN THE AVERAGE LOAN PAYMENT WOULD JUMP BY MORE THAN 38-41%, 24-27 THOUSAND HUNT.
The average (median) loan does not adequately represent the entire population, in the case of about half of the loan contracts affected by the interest rate freeze, the introduction of the interest rate freeze would be a bigger shock.
The MNB also calculated, based on the more detailed breakdown, how a 5 percentage point interest rate increase would affect the mass of customers with interest rate caps. Based on this, roughly a quarter of fixed-rate mortgages, 83,000 contracts, would be affected by a monthly increase of more than HUF 15,000 AND 15%, within which 24,000 contracts would have an increase of more than HUF 30,000 AND 30%.
HOWEVER, SINCE THE INTEREST RATE INCREASE NOW SIGNIFICANTLY EXCEEDS THE 5 PERCENTAGE POINTS PRESENTED BY THE MNB, IN THE ABSENCE OF THE INTEREST RATE STOP, HOUSEHOLDS WOULD HAVE A MUCH LARGER DEBT SERVICING SHOCK.
In June, the government extended the interest stop measure until December 31, but it still did not extend it to market mortgage loans with fixed interest rates (with an interest period of at least 3 years) that are repriced in the short term. Based on the above data from the MNB, the mortgage loan portfolio of almost HUF 1,500 billion is still affected by the interest rate stop. In the case of full and immediate repricing, in addition to the current interest rate environment, as calculated by the Portfolio
THE INTEREST INCOME OF THE BANKS WOULD BE HIGHER BY AROUND 160 PER YEAR, OR MORE THAN 13 BILLION HUF PER MONTH, WITHOUT THE INTEREST CAP.
It can therefore be said that maintaining the interest rate cap is becoming more and more expensive for the banking sector, while removing it would be more and more painful for households.
Of course, the drastic increase in the interest rate environment also affects other borrowers, including a good number of those who are not included in the interest rate cap. About two-thirds of residential mortgage loans have an interest period of at least 3 years, so their installments will not be affected by interest rate increases in the short term, only if their due date falls on this period. As shown in the table above, in addition to the 330,000 interest rate caps, there are also about 130,000 from such credit agreements between 2021 and mid-2023.
Personal loans, baby loans and CSOK loans that have already been taken out typically have a fixed interest rate until the end of the term, so they are also not affected by the rise in the interest rate environment. In the case of corporate loans, the picture is already mixed, because in the last two years, relatively many NHP, MFB and Széchenyi Card loans were taken out by eligible small and medium-sized companies, and the proportion of foreign currency loans with market interest rates or EXIM is relatively high but, at the same time, there are undoubtedly constructions linked to BUBOR, not a small proportion. The MNB is the latest Financial Stability Report according to this time last year, 47 percent of the total corporate loan portfolio had fixed interest rates beyond one year, the remaining 53 percent were within one year, but this also includes foreign currency loans, which are presumably even less sensitive to the interest rate risk.
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Source: Portfolio.hu – Bank by www.portfolio.hu.
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