The new regulations imposed by the central bank will affect the rebound of lending, because they will lead to lower demand and even to a short-term increase in interest rates, which will in turn reduce demand for homes. The “First Home” scheme remains the only major obstacle to the price decline, experts contacted by ZF believe.
The central bank is aiming to limit consumer loans to a maximum of five years, while requiring a down payment of at least 30% in the case of foreign currency mortgage loans, at a time when lending is showing the first tentative signs of recovery after two years stagnation.
“These measures will probably affect the ‘eagerly awaited’ rebound of lending to some degree, considering clients still have a low appetite for new loans and the number of eligible clients is limited, but the new regulations will in fact contribute to a healthier lending activity in the future,” says Adrian Chichita, deputy general manager of retail at OTP Bank. “It is too early to give an exact estimate of the impact on next year’s budget,” he adds.
The draft regulation has been put up for public debate this week and will also apply to the branches of foreign banks. Bankers will have two weeks to negotiate the new rules with the central bank.
A minimum down-payment of 15% on leu-denominated mortgage loans is set to be introduced, which could encourage lending in Romanian currency, especially amid expectations for interest rates to decline starting next year, when a relaxation of the monetary policy is expected.
“The market does not really have a choice and we will see a migration from the euro to the leu, especially since there are expectations for interest rates on leu-denominated loans to decline somewhat starting next year. Competition is quite high among banks and this year we will probably see a different level of the monetary policy interest rate,” believes Anca Bidian, CEO of credit broker Kiwi Finance.
The restrictions on foreign currency mortgage loans, which account for more than 95% of the volume of home funding, will, however, not have a significant impact on real estate prices, companies on the market believe.
“On a stagnating market, with already restrictive lending terms, the new measures will not have a significant impact on real estate acquisitions. In addition, lower-value home loans will not be affected by the directive because they are ruled by the “First Home” scheme, to which the new norms do not apply,” said Bogdan Sergentu, head of valuations and consulting at real estate consultancy DTZ Echinox.
Banks will also have to put together more drastic risk scenarios in order to make sure the client’s indebtedness ratio does not exceed the maximum level set by banks’ own lending norms over the entire period. The maximum indebtedness ratio will be set considering the foreign exchange risk, the interest rate risk and the risk of lower income.
The new regulations limit the duration of home equity loans at a maximum of five years, a hybrid product that resembles a mortgage loan, but the clients can use the money as they please.
Bankers already have objections to the current version of the draft regulation.
“I believe the current draft should be amended to provide different treatment based on the currency in which the client earns their income. The current proposal applies in the same way to a foreign currency loan taken out by an individual earning in lei and a foreign currency loan taken out by someone who earns in that foreign currency, and who is in fact covered against the foreign exchange risk,” says Iuliu Muresan, executive vice-president of Leumi Bank.
(English version by Daniela Stoican; Editing by Loredana Fratila-Cristescu and Radu Bostan)