The volume of loans granted for the acquisition of homes climbed by nearly EUR720 million in the last year and by over EUR2 billion since the end of 2008, when the crisis started on the Romanian market.
“Loans granted through the ‘First Home’ scheme continue to be the star of real estate lending, as they account for more than 60% of the overall sales,” says Adrian Jantea, BRD promotional and distribution manager for individual clients.
Around 46,000 people took out mortgage loans guaranteed by the government through the ‘First Home’ scheme since the beginning of the program in mid 2009. These loans are worth a cumulated EUR1.8 billion.
The level of new sales is reflected quite clearly in the increase in the volume of real estate funding, considering that repayments are very low due to the long maturities of up to 30 years.
Clients prefer foreign currency-denominated loans because they come with significantly lower costs. Loans in euros and other currencies totaled EUR6.92 billion at the end of last month, i.e. 95% of the overall funding. “Long-term loans are denominated in foreign currency because their interests are very attractive,” says Nicolae Surdu, general manager of Banca Carpatica.
The difference between the average interest on loans in lei and on loans in euros is over three percent, from nearly 10% to 6.5% a year, according to central bank data. For instance, for a EUR40,000 loan or its equivalent in lei, the difference between the monthly installment on a leu-denominated loan and a euro-denominated one is about EUR85.
Over the course of 30 years a client pays EUR30,000 more to the bank. Bankers say in addition to the interest rate difference, the fact that prices are expressed in euros also fuels clients’ appetite for such loans.
The National Bank of Romania is, however, currently preparing a new regulation aimed at restricting foreign currency lending, seen as a major risk factor for the economy. Under the regulation, banks will have to ask for at least 25% as a down payment on foreign currency mortgage loans, whereas consumer loans will have to be backed by guarantees accounting for at least 133% of the value of the funding.
Banks will also have to put together risk scenarios and consider a 37% depreciation of the leu/euro exchange rate over the course of the lending period, when they decide on the maximum indebtedness level (the ratio of the monthly installment to the client’s income). The amounts that clients will be able to borrow will decline significantly under such a scenario.
(English version by Daniela Stoican)