Economy 4 November 2020, 3:00pm

Housing loans in Hungary: Borrowers storm lenders

Portfolio

The coronavirus pandemic upset the market of home loans in Hungary for merely three months in the spring and by the end of September it recovered to over last year's level. Actually, a new record was reached in September, with households taking out 91 billion forints worth of mortgages. On the other hand, personal loans have still not recovered and the latest data by the central bank (MNB) show deceleration in the extension of corporate loans, as well. September brought feeble figures on the deposit front, and we can only hope this is not the harbinger of households starting to tap their savings.

Following the release of H1 home loan market figures by the central Statistical Office (KSH), the central bank (MNB) has also published its own lending and deposit statistics for September. Retail lending is a mixed bag of data, as:

HUF 91 billion worth of housing loans were extended in September, which corresponds to a 21% year-on-year increase and is probably a new all-time high in nominal terms (see below);
HUF 29 billion worth of personal loans were taken out by households, 43% less than a year earlier, but this is still the highest monthly reading since the coronavirus outbreak in the spring;
HUF 53 bn worth of loans linked to the baby-expecting support were taken out in September, down 47% yr/yr, but the second-highest figure since the outbreak.

Households borrowed a total of HUF 197 billion in September, which equals one third of the Sept19 print.

In the first nine months of 2020, the mortgage market recovered significantly, while the other segments were not as successful, as:

the value of housing loans in Jan-Sept was up 1.2% in annual terms, and the numbers showing the housing market's Q3 performance are also reassuring;
personal loans were affected negatively by the APR ceiling being in place until 31 December and dwindling consumption, which led to a 39% yr/yr decline in this segment;
loans linked to the prenatal baby support took off last year therefore their decline is a natural phenomenon. There is no annual comparison for Jan-Sept, given that the programme was launched in mid-2019.

The central bank's lending statistics go back to 2005 and these show that new housing loans extended in September 2020 exceeded the HUF 89 billion record set in October 2008 (although most of those were FX loans). Of course, this is a new all-time high only in nominal terms, as at real value it was far behind the level reached 12 years ago. The achievement of a nominal peak likely has a lot to do with demand postponed in April-June, as new lending in those months declined over the same period of 2019.

As our chart depicting 12-month trailing data also shows that housing loans set a new record, while consumer loans are below the recently achieved peak. The National Bank of Hungary classifies prenatal baby support loans also as consumer loans.

The loan repayment moratorium has a significant impact on the lending market, as nearly half of retail loans are affected by it, and so the repayment of loans has slowed down substantially since mid-March. This is one of the reasons why HUF 115 billion more loans were taken out in September than how much was repaid (net transaction data).

The stock of retail loans was up 15% yr/yr at the end of September. This major increase stems partly from the banks' lending activity over the 12 months to end-Sept, partly to a new product, the prenatal baby support loan and partly to the repayment moratorium. The stock of housing loans grew by 9.5%, and that of personal loans was up 14% in annual terms. With a HUF 923 bn stock loans linked to the baby-expecting support amounted to 11.7% of households' total liabilities to banks.

The average annual percentage rate (APR or THM in Hungarian) was below 5.7% on personal loans at the end of September due to the THM ceiling in place until the end of the year and it was 4.06% on an average housing loan. The coronavirus crisis did not cause much of a change at the latter where the APR was 4.02% in March. i.e. before the outbreak.

The same applies to the interest rate on retail bank deposits. The interest on an average forint deposit with maturity up to 12 months was merely 0.3% in September and that on deposits with maturity of over 12 months was 0.6%. Deposit rates edged up only marginally during the spring lockdown but the process did not last long.

Most of the deposit holders were focusing not on the interest rate rather than on the forint exchange rate apparently, and this is probably why a substantial amount of HUF 39 billion of FX deposits were withdrawn. HUF deposits saw a net growth of merely HUF 19.9 billion, which begs the question whether what we're seeing here is households starting to tap their savings. Data for the following months will give us the answer.

Retail deposits amounted to HUF 10,487 billion at the end of September, which marks a 14.9% yr/yr growth. The major increase must have to do with the repayment moratorium that has been helping households accumulate savings since mid-March.

The coporate sector is also a mixed bag when it comes to loans. Firstly, corporations were still net borrowers in September, but the amounts they took out were relatively small. Even considering the positive impact of the repayment moratorium (without which this figure would be a lot smaller) this is by far not the same volume we got used to over the past two years.

This is also attested by the fact that while corporate loans grew by 10.5% yr/yr, the increase compared to March was only 1.8%. Note that the moratorium adds several percentage points to the loan stock therefore without it corporate loans would have shown a decline. All this in times when revenues fall sharply at several businesses and they would need higher liquidity.

Also taking the moratorium into consideration, corporations took out HUF 652 billion more loans than how much they repaid over the 12 months to end-September. It probably has to do with the boom in the central bank's Funding for Growth Scheme this year and a mass of refinancing deals that the growth stemmed almost exclusively from forint loans. In the FX segment, corporations have firmly been net loan repayers since March.