Economy 10 October 2023, 1:00pm

Never-before-seen charts on Hungarian housing loans - Are young people on the attack?

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The National Bank of Hungary (MNB) has published brand new statistics on mortgage loans and their loan-to-value ratios. It not only shows that borrowers are getting younger, but also that the average size of own financing is decreasing and that 60% of housing loans are taken out for at least 20 years.

Under the MNB's debt brake rules, up to 80% of the market value of the mortgage collateral can be taken out as a mortgage loan. Recent statistics from the central bank show that the proportion of mortgage borrowers close to this legal limit is increasing. While the proportion of mortgage loans with a loan-to-value ratio of over 70% was around 14% last autumn, it was up at 19.5% by June this year.

At the same time, the share of least risky borrowing with LTV of 30% or less has fallen below 30%. As the subsidised home renovation loan has not been available since the beginning of the year, it cannot be a factor behind the deterioration in recent months, and the phenomenon is rather a reflection of falling house prices and a declining average own contribution.

By loan purpose, second-hand home buyers are those with the highest LTV ratios, while new home buyers pulled up the statistics the most at the beginning of the summer. On average, the average LTV fluctuated between 50 and 55% in the first half of the year, meaning that borrowers generated almost half of their purchase price from other sources rather than from credit.

There is a clear positive correlation between LTV and the term of the loan, so the longer the term of the loan, the more the property is mortgaged. The link between the two is established by the loan amount, since the larger the amount borrowed, the more the repayment burden on income increases, and the longer the term, the more or less the debtors can protect themselves against this. The average LTV of housing loans with a maturity of 10-15 years was 44%, while those with a maturity of 25 years or more were above 55%.

If you can take out a family housing allowance (CSOK) alongside a housing loan, you are in a better position in two ways: 1.) Banks typically consider the CSOK taken out for an existing child as a contribution to the cost of the loan, so you need to take out a smaller loan than without it. 2.) A 3% interest-subsidised CSOK loan taken out alongside a CSOK is less of a burden on your income than a market-rate scheme.

Moreover, those who take out a CSOK often also take out a Baby Loan, which also reduces the borrower's exposure. Most crucially, however, the 3% interest-subsidised CSOK loan is available up to HUF 10 million for those with two children and HUF 15 million for those with three. Overall, these factors are likely to explain the lower LTV ratio of interest subsidised loans linked to CSOK, as shown in the graph below.

The MNB statistics also show the age distribution of housing loan borrowers in terms of the age of the principal debtor. Since autumn last year, there has been a short-term trend change in favour of the youngest: one in six housing loans (by amount) were taken out by people under 30. The largest proportion is undoubtedly in their 30s, followed by those in their 40s.

Finally, data on the distribution of housing loans by maturity are also interesting. There is no general trend in the short term, but it is worth noting that three quarters of housing loans are taken out by households with a maturity of between 15 and 30 years, with the share of housing loans of at least 20 years being around 60%.