Extension of interest rate cap will leave HUF 20 bn in Hungarian borrowers' pockets - ministry

The government has decided to extend the interest rate freeze by six months, until 30 June 2025, to protect the mortgage borrowers concerned. The interest rate freeze currently protects 291,000 mortgages against a sharp rise in interest rates,

outstanding principal debt exceeds HUF 1,220 billion, which represents one fifth of the total mortgage loan portfolio.

To avoid a drastic rise in interest rates, the government introduced a retail interest rate cap in January 2022, which was later expanded and extended several times.

The three-year period from the introduction of the interest rate freeze to the end of 2024 will mean savings of HUF 300 billion, which is how much more is left in the pockets of the families concerned, the ministry said.

The table below is taken from our recent analysis and is consistent with the ministry's communication on the stock.

According to the statement, the government believes that in the current interest rate environment, there is no justification for abolishing this measure and has therefore decided to extend the retail interest rate freeze until 30 June 2025.

Government measure will save families another HUF 20 billion over a six-month period,

the ministry concluded.

The extension is not a surprise,according to our recent analysis, as the banks themselves were expecting it, asthe spread between the current 6.5% BUBOR and the 2% reference rateof the interest rate freeze remains wide, and there is no prospect of a significant narrowing for the time being.

However, the bad news for the market is that there is still no talk of when the measure will be phased out, which is what the banks would like to see and would be a sensible move.

According to the central bank'sFinancial Stability Reportpublished on Wednesday (full report here): "With the lower interest rate environment, the phase-out of the interest rate cap on mortgage loans at the end of 2024 may cause payment difficulties only for a limited group (5%) of the debtors concerned, and they only account for 2% of total household mortgage debt."

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