Changes in mortgages since 1 July 2018 have been scaringly intensive for several months. In the media, it sometimes looks as if mortgages were to end. But it is not only tragic. Mortgages go on. What’s Changing on July 1 Mortgages? How does it affect people?
DTI – share of total debt to net annual income
NBS regulation has introduced a new indicator for the market. It’s DTI, which means debt to income. The DTI talks about the proportion of the total debt of a loan to its net annual income.
There is currently no ceiling that limits the client’s maximum credit burden. The limitation is basically, if I simplify it, only the creditworthiness of the applicant for the loan and the value of the property.
From 1.7. 2018 it will be different for mortgages. Regulation has set limits to 8 times the net annual income.
If eg somebody earns € 1,000 a month, so the maximum loan load is 1,000 x 12 x 8 = 96,000 €. If the applicants are two with income eg. € 1,000, so the credit ceiling will be € 192,000.
Exceptions to the credit ceiling mitigate the measure
The credit ceiling of 8 times the net annual income is not absolute. Exemptions will be applied to the DTI indicator in this NBS measure. This is similar to what you might know with LTV, where the NBS has already set exceptions for LTVs over 90% in the past.
What can be more than 8 loans with a DTI can be seen in the table below.
Additional condition for people under 35
This condition slightly mitigates the impact of change in mortgages after 1 July 2019, when the share of mortgages over DTI 8 will no longer be more than 5%. As a result, 5% of the extra applicants will receive a DTI 8 mortgage. However, they must:
- age under 35
- DTI to 9,
- income up to 1.3 times the average income in the national economy.
These conditions partly coincide with the conditions for obtaining a mortgage for young people, where it is possible to obtain a state contribution in the form of a tax bonus.
How will LTV mortgage lending limits change from 1 July 2018?
For some time now, the NBS has been regulating lending with LTV over 90%. The market has somehow absorbed these changes and everything goes on. Nothing dramatic happened. 100% of the mortgages banks continued to provide, albeit in limited numbers. In the course of June, we have successfully resolved several such cases.
What exactly will change with LTV from July 1 this year
100% mortgages disappear completely from the market. No bank will be able to provide a 100% mortgage. If you do not have your own resources at least 10% of the value of the property, you will not buy the property.
If you want to bypass it, the only option is to deal with it through another type of loan, eg a consumer loan or an inter-bank loan from a building society. Of course, such a solution will burden your wallet with higher repayments and it is possible that you will pay more for interest.
Banks will be able to provide 90% of mortgages in limited quantities. The NBS has set exact limits, as it used to be for hundred percent funding. You can see the exact numbers in the table below. This is true for mortgages with LTVs from 80% to 90%. Source: processed by the author according to NBS material
There will be no restrictions on mortgages up to 80% LTV, although LTVs in the past have fallen to 70%. In the new regulation, such a number did not appear.
Restrictions on LTV will not apply to refinancing loans, which is good news for people who want to save on refinancing their mortgage.
Why NBS is changing the rules for providing mortgages
In the past, people in Europe belonged to the least indebted Europeans. However, when you look at the “Analysis of the Slovak Financial Sector” for 2017, which is an official document from the NBS, the figures say that it has changed.
Slovak households are in the fastest pace in Central and Eastern Europe. Household indebtedness grows faster than disposable income increases.
The reaction of the NBS has not long waited in the form of lending regulation. However, it is questionable whether it will help Slovak households to indebt less.
Indebtedness is helped by low interest rates on mortgages, the fear that property prices will be even higher, low unemployment and wage increases. All these factors add to people’s appetite and courage.