The stock with fixed interest rates is decreasing, but increasing
A government decree published on December 24 last year defines the basic rules for the interest rate freeze that started on January 1, 2022, originally until June 30, 2022. At that time, only mortgage loans with a variable interest rate (with an interest period of up to 12 months) and variable subsidized mortgage loans were included in its scope. At the beginning of the year, we summarized the legal details here, since then three major changes have appeared:
- a government decree published on June 17 this year extended the interest rate freeze until December 31, 2022, still for mortgage loans with variable interest rates and subsidized mortgage loans with variable rates referring to it – the BUBOR of October 27 last year should be taken into account as a reference value,
- a government decree published on October 14 this year, the longer For mortgage loans with an interest period of 3 and 5 years also extended the interest rate freeze with effect from November 1, at the same time extending the entire interest rate freeze Until June 30, 2023for the former, the BIRS or ÁKK yield of October 27 of last year must be taken into account as a reference value,
- with a government decree published on October 26 this year, the government extended the interest rate cap to for debtors classified as small and medium-sized enterprises (SMEs). to their variable-interest, forint-based credit and loan agreements, as well as financial leasing agreements, not including the credit line agreement related to the payment account. This from November 15 to June 30 valid. The BUBOR of June 28 of this year should be taken into account as a reference value.
We wrote about the exact rules in detail here last time, the diagram below shows that although the Budapest interbank interest rate left its peakhow much higher is BUBOR now than at the time of the reference value that determines the interest rate stop: by roughly 13 percentage points for mortgage loans and 7 percentage points for SME loans.
From the MNB’s report, we found out how much of the loan portfolio is currently affected by the measure based on mid-2022 data. Based on this, 302,000 contracts had a mortgage debt of HUF 1,271 billion before the interest rate freeze, this in November, it increased to 371,000 contracts and HUF 1,542 billion by including loans with 3- and 5-year interest periods. Finally, it is not included in the table kkv-k were also included on November 15 With a loan balance of HUF 1,206 billion. For the latter, the government has so far communicated about HUF 2,000 billion, which was corrected by the MNB.
|Interest-free and non-interest-free mortgage loans from banks and debt service providers|
|Originally, it has a variable interest rate with an interest stop||1 216||294 148|
|It was also originally subsidized with an interest rate cap||54||7 865|
|It has an interest rate freeze of 3.5 years||271||68 780|
|It is not interest-free, but it is repriced during the interest-free period||19||6 816|
|It is not subject to an interest rate freeze, and the price does not change during the interest rate freeze||4 048||465 138|
|Total mortgage loans subject to an interest rate freeze||1 542||370 793|
|Total mortgage loans not affected by the interest rate cap||4 066||471 954|
|Percentage of mortgage loans subject to an interest rate freeze||27%||44%|
|TOTAL MORTGAGE LOANS||5 608||842 747|
|SME loans affected by the interest rate freeze in total||1 206|
|Source: MNB, Portfolio|
The stock of variable-rate mortgage loans affected by the interest rate cap is gradually decreasing, apart from the effect of the extension: on the one hand, the loans are being repaid, and on the other hand, they are gradually expiring, and thirdly, in the case of variable-rate mortgage loans, the proportion of prepayments also increased in the first half of the year as a result of the government distribution before the elections (1.4% per month in the spring compared to 0.6% of fixed interest loans). As a result of all this, at the end of June, 22% of mortgage loans only had variable interest rates, which is only half of the rate observed at the beginning of the coronavirus epidemic.
According to the MNB’s calculations, the repayment burden of the general population could be HUF 37 billion lower in the second half of 2022 and HUF 60 billion in the first half of 2023 due to the measure.
It would be a shock, but the distribution of loans is favorable
In addition to the loan interest rate, the extent to which the introduction of the interest rate cap would lead to an increase in installment payments in absolute amount and in percentage terms is primarily determined by the amount and remaining term of the debts. The MNB published several encouraging data in this regard in the report:
- the median outstanding principal of mortgage loans with variable interest rates only HUF 2.6 million,
- their median remaining term is also moderate: 7.1 years,
- the monthly installment discount caused by the interest rate freeze in the second half of 2022 on average 12 thousand per month HUF,
- In the first half of 2023 the monthly installment 21 thousand on average can be HUF less compared to the period without the interest stop.
- with the largest debt and/or remaining term for the top 25 percent (75 thousand contracts) in the second half of 2022, approx 26 thousand per month HUF is the amount of the discount.
The typical debtor can pay a 48 percent higher repayment in July compared to the June 2023 interest-free installment.
This roughly corresponds to our figure below, which shows that a loan with a remaining term of 7 years would now have about 50% higher repayments, and the longer the remaining term, the greater the shock would be in the event of the interest rate freeze. The opposite is true for shorter-term loans.
The MNB calculated for the second half of 2022 and, based on the expected evolution of the BUBOR, for the first half of 2023, how the repayment installments of the debtors would increase. Right now in the case of the median loan, the abolition of the interest rate cap would cause a repayment increase of HUF 15,000 and around HUF 20,000 in the first half of 2023.
What would have happened without the interest rate stop?
The MNB examined how the repayment installments of the typical debtor would have developed if the current fixed-rate loans had been disbursed with variable rates – under market conditions. For this, three quarters were compared: (1) from the period before and (2) during the interest rate hike cycle, and (3) looking ahead, based on the current forward interbank interest rates.
In the case of a typical debtor, the one-year interest rate fixation resulted in an overall saving of HUF 1.3 million over the time horizon examined: before the interest rate hike cycle, he paid HUF 3,000 more per month than if he had taken out a loan with a variable interest rate, but in the second quarter of 2022, he already paid an average of close to You will pay HUF 20,000 less, and in the second quarter of 2023 it is expected that you will pay HUF 73,000 less. In aggregate, this means that
while before the interest rate increase debtors would have paid an average of 1.6 billion forints (8 percent) less per month if their product had been disbursed as a loan with a variable interest rate, in the second and third periods it was already 10.6 billion forints (35 percent) and 37, respectively They would have paid HUF 7 billion (109 percent) more.
Under market conditions, those who took out a loan with a fixed interest rate have a total of HUF 609 billion lower in debt service over the entire examined period – between the middle of 2017 and the end of 2023 – compared to if they had taken out a loan with a variable interest rate. This difference also means that, in the case of a higher proportion of mortgage loans with variable interest rates, the maintenance of the interest stop measures in a form similar to the current one would entail much higher costs.
|Reference values and scope of the interest rate cap that can be taken into account|
|Reference value||Interest stop value||Current value||What loan does it apply to?||From when?|
|3-month BUBOR on October 27, 2021||2,02%||15,31%||3 month contract mortgage loan||Jan 2022 1. or seq. milestone day|
|6-month BUBOR on October 27, 2021||2,17%||15,15%||6 month contract mortgage loan||Jan 2022 1. or seq. milestone day|
|12-month BUBOR on October 27, 2021||2,40%||15,01%||12-month contract mortgage loan||Jan 2022 1. or seq. milestone day|
|3-year BIRS on October 27, 2021||3,53%||8,86%||3 years old mortgage loan||Nov 2022 1. or the following milestone day|
|3-year ÁKK yield on October 27, 2021||2,65%||9,14%||3 years old mortgage loan||Nov 2022 1. or the following milestone day|
|5 year BIRS on October 27, 2021||3,66%||7,95%||5 years old mortgage loan||Nov 2022 1. or the following milestone day|
|5-year ÁKK yield on October 27, 2021||3,20%||8,64%||5 years old mortgage loan||Nov 2022 1. or the following milestone day|
|3-month BUBOR on June 22, 2022||7,77%||15,31%||3 month contract SME loan||Nov 2022 15 or the following milestone day|
|6-month BUBOR on June 22, 2022||8,26%||15,15%||6 month contract SME loan||Nov 2022 15 or the following milestone day|
|12-month BUBOR on June 22, 2022||8,68%||15,01%||12-month contract SME loan||Nov 2022 15 or the following milestone day|
|Source: MNB, ÁKK, Portfolio|
How much does it cost the banks?
The interest stop does not work like the credit moratorium: there is no disadvantage for the debtor, as in the case of the moratorium, the extension of the term. According to the MNB’s calculations
the interest rate freeze measures will reduce banks’ profitability by around HUF 195 billion this year alone.
As regards the impact of individual measures,
- interest rate cap for variable interest rate and state subsidized mortgage loans The extension for the second half of 2022 is HUF 52 billion it results in a loss for the banks, a part of which – depending on the accounting policy – was settled already in the second quarter,
- a kamatstop its extension until June 2023, as well as its extension and approximately more 85 billion HUF may result in an immediate loss (which presumably affects the profit in the fourth quarter),
- valid between November 2022 and June 2023, with a variable interest rate (not fixed until the end of the term) interest stop for SME loans based on their estimate, additional, total HUF 54-58 billion may cause losses to the entire financial intermediation system.
As we have already written about, the MNB has formulated several criticisms of the measure, which are essentially the same as Portfolio’s previously formulated objections:
- It weakens monetary transmission.
- It results in a direct loss for the banks, which may be further increased by the additional impairment of the affected transactions when the program is launched.
- The domestic has a negative effect financial culture and increases it moral hazard.
- In its current form provides unreasonably many benefits for the owners of mortgage loans with higher risk, with variable interest rates.
- Later on there are omissions: about 7,000 mortgage loan contracts with an interest period of more than 5 years, the interest cycle of which falls within the period of validity of the interest stop, but is not subject to the interest stop even after the extension.
Cover image: Getty Images
Source: Portfolio.hu – Bank by www.portfolio.hu.
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