Economy 2 June 2025, 10:52am

Hungarian gov't mulls extending the interest rate freeze on mortgage loans

Portfolio

"It is not profit, but Hungarian families that come first - the interest rate freeze protects banks as well as housing security", the Ministry of National Economy (NGM) said in a statement in response to the fact that several Hungarian banks have turned to the Constitutional Court over the interest rate freeze on mortgage loans, as announced by the Hungarian Banking Association on Friday. The measure has now been in place for three and a half years and the government appears set to extend it again. The ministry said the petition to the Constitutional Court "endangers the situation of Hungarian families and the security of housing."

Hitelezés konferencia_1szekcio_011 (nagy márton)

The Hungarian Banking Association's Friday statement

We provide the statement of the Hungarian Banking Association in full, with highlights added by Portfolio:

"The Government of Hungary introduced an interest rate freeze on variable-rate residential mortgages in 2021, citing the Covid emergency. According to this regulation, credit institutions may charge only the interest rate of 2.02% corresponding to the 3-month BUBOR valid on 27 October 2021, regardless of the content of the contracts already concluded, and may not claim the interest rate differential determined on the basis of the contractual terms and conditions later. The measure was later extended to financial leasing contracts for housing and to non-interest-bearing mortgage loans with fixed interest periods of up to 5 years.

Following the Covid emergency, the Government extended the interest rate freeze despite the fact that the epidemic emergency no longer existed. As a result, the interest rate charged remained unchanged, despite the rising interest rate environment. The extended interest rate freeze was due to expire on 31 December 2024, but the Government extended it for a sixth time, until 30 June 2025, despite the declining inflation and the reduction of the benchmark interest rate from 18% to 6.5%.

The interest rate freeze is a measure of economic, legal and ethical concern, not least because banks have repeatedly informed their customers in writing of the interest rate risk on variable-rate mortgages, as required by regulators and supervisors, and offered the possibility of a fixed rate, which some customers have taken up.

Since

the interest freeze regulation and its extension interfere in private legal relations without constitutional basis, unnecessarily and disproportionately,

several members of the Hungarian Banking Association,

such as OTP Bank Nyrt., OTP Jelzálogbank Zrt., Erste Bank Hungary Zrt., K&H Bank Zrt. and Raiffeisen Bank Zrt.

are asking the Constitutional Court to declare that the interest rate freeze measures, and their extension are in clash with the Constitution."

Good morning! The interest rate freeze has been in place since 1 January 2022, and for more than three years now it has benefited the very people who, according to our calculations last October, needed it the least. We cannot judge the constitutionality or unconstitutionality of the measure, but from an economic point of view, its existence is already highly questionable.

The ministry's response

The full text of the ministry's statement is provided below, with the highlights in bold added by Portfolio:

"Without targeted and effective government intervention, tens of thousands of families could have lost their homes due to increased mortgage payments. However, the government has made clear that it cannot repeat the lending and housing failures of the balliberal era, when families were first indebted in foreign currency and then, in many cases, made landless. To avoid this and to protect families, the government introduced the household interest rate freeze in January 2022, which has been extended and extended several times to protect households from the negative effects of the high yield environment. Without the interest rate freeze, household borrowing rates could have risen dramatically to levels above 25% and

repayment rates would have been more than 80% higher on average.

The government has prevented this, and the retail interest rate freeze has already protected around 350,000 families from high interest rates, and is currently protecting more than 286,000 mortgage contracts. Between the introduction of the interest rate freeze and June 2025,

nearly HUF 330 billion in savings were generated, leaving that much more money in the pockets of the families concerned.

The interest rate freeze protects the stability of the domestic banking system, in addition to hundreds of thousands of Hungarian families, who are saved from suffering significant losses on defaulted, non-performing retail loans. The outstanding capital of families reaches HUF 1,210 billion, while the interest rate freeze protects nearly a fifth of the total stock of residential mortgage loans. This stock would be at risk without the government's action, posing a significant risk to the banking sector as a whole.

The 2022 interest rate freeze has not hurt the Hungarian banking system's profits.

The sector is stable, and with the interest rate freeze and the bank tax, the sector's profit was HUF 339 billion in 2022, HUF 1,457 billion in 2023 and HUF 1,242 billion in 2024.

The Ministry of National Economy considers that the petition to the Constitutional Court threatens the situation of Hungarian families and the security of housing.

Moreover, in a serious situation where war is raging in our neighbourhood and the accelerated EU accession of Ukraine and the reallocation of financial resources forced by Brussels is endangering and threatening families. There is no room for profit motives, and the Hungarian Government will continue to fight with all its means to protect and further support families and home creation. The resources must be used not for Ukraine or for further fattening the banks' profits, but for Hungarian families!"

Why is the interest rate freeze harmful?

It is worth recalling the opinion of the National Bank of Hungary (MNB) in the autumn of 2022 that

the interest rate freeze measure will substantially reduce the repayment burden of the affected debtors, but it also has a number of adverse consequences:

Weakens monetary transmission.
It leads to a direct loss for banks, which may be further increased by the additional depreciation of the transactions concerned when the scheme is phased out.
It has a negative impact on domestic financial culture and increases moral hazard.
In its current form, it gives undue advantages to holders of higher-risk variable-rate mortgages.
There are still (or were in autumn 2022) around 7,000 mortgage loan contracts with an interest period of more than 5 years whose interest period falls within the period of the interest rate freeze, but which are not subject to the interest rate freeze after the extension.

Banks have proposed several targeted and selective solutions for handling the most vulnerable cases, similar to previous government measures like the foreign currency loan exchange rate cap or the loan repayment moratorium. These could include government-bank burden sharing or deferred payments combined with term extensions for cases where instalment increases would exceed certain thresholds.

The government must now decide whether to extend the measure beyond 30 June, terminate it entirely, or implement a more targeted solution that could be acceptable to both banks and vulnerable borrowers. However, the tone of the communications quoted above do not point in the direction of a compromise solution.

Cover photo (for illustration purposes only): Portfolio