Economy 12 November 2025, 3:30pm

Hungary to extend interest rate freeze - Orbán

Portfolio

Despite certain banks challenging the interest rate cap in the Constitutional Court, the government is extending the measure applicable to mortgage loans with a maximum interest period of five years for the eighth time, presumably until 30 June 2026. We analyse the government's decision, announced by Viktor Orbán on Wednesday, in seven points below.

kamatstop-stop-hitel-lakáshitel-orbán viktor

The interest rate cap will expire at the end of the year. We will extend it. This affects nearly 300,000 families. They can count on us; we will not leave them alone,

the Prime Minister posted in the closed Facebook group Harcosok Klubja (Fight Club), according to a Telex report.

1. Are we surprised?

Nah. With an election year approaching, even market players expected the government to extend the measure again. The interst rate freeze is likely to remain in place until 30 June 2026 due to the elections. This will be the eighth extension to protect some people with home loans and interest-free mortgages from a significant increase in their monthly repayments.

Based on current reference interest rates, the abolition of the measure would mean an additional annual burden of approximately HUF 50-60 billion for the affected households over a period of six months.

2. How many households and how much credit are affected by the interest rate freeze?

According to data published at the end of 2024, the interest rate freeze measure affects 286,000 families, with a total loan amount of HUF 1.2 trillion.

In terms of the number of loans, interest rate freeze loans currently account for 34.5% of the outstanding mortgage loan portfolio. However, in terms of the amount of debt, they only account for 19.1%.

In other words, fewer than one-fifth of debts are currently subject to interest rate caps, whereas at the beginning of the programme, this figure was more than one-third. These are mortgages for residential or personal use, with a maximum interest period of five years.

In other words, fewer than one-fifth of debts are currently subject to interest rate caps, whereas at the beginning of the programme, this figure was more than one-third. These are housing-related mortgage loans or home equity loans, with a maximum interest period of five years.

3. How does the interest rate freeze work?

Contrary to its name, the interest rate cap applies to reference rates, on which banks charge an unchanged interest margin, rather than to interest rates. Due to the interest rate cap,

banks must apply the October 2021 reference interest rate of just under 2% when determining the repayment instalments for existing mortgage loans,

rather than the current market BUBOR level of around 6.5%, which has been typical since the summer of 2024.

Following this extension, mortgage loans with interest rate caps of three, six and 12 months will have been subject to the interest rate freeze for four and a half years. Meanwhile, mortgage loans with three and five-year interest periods, which were included in the interest rate freeze on 1 November 2022, will have been subject to the interest rate freeze for more than three and a half years by the middle of next year. These loans will be priced according to the reference interest rate on 27 October 2021, and any deviation from the contract will be the responsibility of the banks.

4. How much the interest rate cap hurts the banks?

According to the latest calculations by the National Bank of Hungary (MNB), the measure cost the banking sector around HUF 28 billion in the first half of this year. The Financial Stability Report states that by mid-year, the cost to banks had already reached HUF 413 billion and could rise to around HUF 440 billion by the end of the year.

By mid-2026, this figure could reach HUF 460–470 billion.

While it is true that the actual net cost to banks is certainly lower than this, the interest rate cap may have prevented a small percentage of mortgage loans from becoming non-performing, saving banks from having to set aside the associated provisions.

5. How much would repayments increase if the interest rate cap were abolished?

In the example below, we looked at this in the event of a sudden abolition of the interest rate cap, assuming a 3-month BUBOR of 6.5% as the reference rate and a 3 percentage point interest rate premium. Since these are relatively old loans and

the most typical remaining term is 5 years, monthly repayments would increase by around 11%.

However, for loans with longer remaining maturities and larger debts, a smaller group may have to endure a debt servicing shock of over 30%, which could be an unbearably large amount in forints.

Maintaining the interest rate cap enables households to avoid the above repayment impact or shock. Based on aggregate market figures, it is estimated that

households gain an average of HUF 90,000–100,000 each over six months through the extension.

6. How many debtors would take a serious hit?

In its latest Financial Stability Report, the central bank stated that the loan portfolio that could potentially become vulnerable with the phasing out of the mortgage interest rate cap is not significant at the systemic level, and that the phasing out of the interest rate cap poses a minor risk to the quality of the household loan portfolio. According to the MNB's estimate in May,

only 16,000 debtors are considered vulnerable, with HUF 137 billion in loans subject to an interest rate freeze.

Taking into account these debtors' other loans, repayment of 24,000 contracts (HUF 185 billion) could become problematic.

7. Is an interest rate cap beneficial overall?

Not really. As mentioned above, the interest rate cap reduces household debt servicing costs. However, there are also a number of disadvantages, which the MNB compiled in autumn 2022:

The interest rate cap measure

weakens the monetary transmission;
has a negative effect on the domestic financial culture and increases the moral hazard;
results in direct losses for banks, which may be further increased by the additional impairment of the contracts concerned, resulting from the potential sudden surge in instalments upon phase-out of the programme, instead of interest rate increases materialising gradually;
(the current form of the measure) provides an unreasonably wide-ranging benefit to higher-risk, variable-rate mortgage borrowers, while also having several negative consequences from a macroeconomic point of view;
there are still some 7,000 mortgage loan contracts (as of November 2022) with over 5-year interest rate fixation periods whose interest rate changes between November 2021 and June 2023, i.e. the eligibility period of the interest rate cap, but are not subject to the interest rate cap even after the extension.