FME issues rules on maximum loan-to-value ratios
The Financial Supervisory Authority (FME) has issued
rules limiting the loan-to-value ratio of new residential mortgages in
accordance with Article 25(1) of Act No. 118/2016 on Consumer Mortgages. In
accordance with the Rules entering into force, the maximum loan-to-value ratio
will be 85% of a property's market price. However, first-time home buyers may
be granted loans of up to 90% of the market price in accordance with Article
25(2) of the Consumer Mortgage Act. The purpose of the rules is to maintain
financial stability in light of growing imbalances in the housing market and to
strengthen the resilience of lenders and borrowers with respect to the
possibility of falling property prices.
The Financial Stability Council (FSC) has given its
opinion on the rules, dated 20th June 2017. In the opinion, FSC endorses FME's
recommendations and reaffirms that the current state of the housing market
gives reason to consider the resilience of both lenders and borrowers.
According to FSC, the rules are well suited to respond to conditions that could
threaten financial stability or unduly affect the financial system.