A couple look at properties advertised for sale in an estate agent's window in... Read More
Hundreds of thousands of families who held Swiss-franc mortgages faced soaring monthly payments when the national currency -- the forint -- plunged after the 2008 financial crisis. Hungary banned foreign-currency home loans in 2010 and record-low interest rates this year are finally luring borrowers back to the market.
“I originally wanted to rent, but interest rates are so low, housing prices are down and rents are creeping up, so I thought it was a good time to buy,” said Varga, who in
March bought a new two-bedroom apartment on the outskirts of Budapest with a 13 million forint ($54,000) 20-year mortgage. “It makes a big difference that there’s no foreign-currency risk.”
Austrian, German and Italian banks along with OTP Bank Nyrt., Hungary’s largest lender, fueled a credit boom with low-cost foreign-currency mortgages. The share of foreign-currency loans peaked at 38 percent of gross domestic product in 2009, according to Raiffeisen Research, setting the stage for a surge in defaults. The government, following an International Monetary Fund bailout in 2008, holds lenders responsible and is pressuring them to pay refunds after raising their taxes.
Plunging Rates
Plummeting mortgage rates this year are drawing borrowers back. The National Bank of Hungary cut the benchmark rate to a record 2.1 percent in July from 7 percent two years ago as part of Europe’s longest uninterrupted easing cycle. Policy makers pledged to keep the rate unchanged through 2015 to help boost lending and growth.The economy, which suffered two recessions in the past five years, grew 3.9 percent in the second quarter from a year ago, the fastest pace in eight years.
The average rate on new forint mortgages was 7.6 percent in the second quarter, according to the central bank. Varga, the homeowner, said he’s paying a fixed annual rate of less than 6 percent for the next three years.
“Forint loans are now really cheap, cheaper than Swiss-franc loans were at the height of the foreign-currency mortgage boom,” said Zoltan Kovacs, managing director of Budapest-based Benks Kft., which helps retail and corporate clients find loans. “It’s starting to look like a functioning mortgage market again.”
Rising Sales
The volume of new mortgages rose to 26.2 billion forint in July, a 27 percent increase from the previous month and 70 percent higher than a year ago, according to central bank data. In the first half of this year, mortgage volume increased by 54 percent from the year-earlier period.OTP forecasts 95,000 property sales this year, up from 88,000 in 2013 and 86,000 the previous year, according to Antal Kovacs, a deputy chief executive officer at the Budapest-based bank.
“We see definitive signs of a turnaround,” Kovacs said. “This is still a far cry from the annual 150,000 transactions, which is about the equilibrium point for the Hungarian market.”
In central and eastern Europe, damage from the surge in foreign-denominated mortgages has been most pronounced in Hungary. Borrowers’ repayments more than doubled following the forint’s plunge of about 45 percent against the Swiss franc since 2008. A post-crisis high of 23 percent of all foreign-currency mortgages were non-performing in the second quarter, according to the central bank.
Poland’s Example
In Poland, where foreign-currency loans hit a high of 16 percent of GDP in 2009, only 2.9 percent of Swiss-franc mortgages are delinquent. Poland’s regulator, unlike Hungary’s, allowed only more affluent borrowers to take foreign-currency loans and made sure that loan interest rates were pegged to the Swiss national bank’s benchmark rate.Housing construction in Hungary dropped last year to the lowest since World War II, according to the statistics office, which compiles the number of permits issued for new housing. The number of permits -- which OTP bank calls a “key sign of confidence” in the housing market -- fell to 7,536 in 2013 from 59,241 a decade ago.
Home prices have yet to recover from the crash, with values down 17 percent since 2008, OTP said in a Sept. 3 report.
“Hungary has the lowest home prices among EU members in the region,” said Gabor Rutai, head of research at Duna House, one of the country’s biggest real estate agencies. “The combination of cheap funding opportunities and cheap homes is what’s leading the upswing.”
Orban’s Moves
Prime Minister Viktor Orban was elected in 2010, backed by a popular backlash against banks. OTP competes in Hungary mostly with foreign lenders including Erste Group Bank AG (EBS), Raiffeisen Bank International AG (RBI), UniCredit SpA (UCG), Intesa SanPaolo SpA (ISP) and KBC Groep NV. (KBC)Orban moved aggressively to reform lending and make banks pay for the market’s collapse. After banning foreign-currency mortgages, he allowed borrowers who could afford it to repay these loans at below-market rates in a lump sum. Lenders lost $1.7 billion in 2011 as a result of the repayments. Other homeowners could fix installments at below-market exchange rates, with banks, borrowers and the government splitting the costs.
Squealing Banks
Orban also levied several new taxes on domestic and foreign lenders over the past four years to finance the budget. He has imposed Europe’s highest bank levy based on assets as well as a tax on financial transactions. Last year, Orban said he wanted to squeeze banks with taxes until they “squeal but still open the next day.”More financial pain may be ahead for banks. Lawmakers will vote on a bill on Sept. 24 that would force banks to refund customers for alleged “unfair” unilateral interest-rate increases on household loans, including mortgages, and for charging a margin on exchange rates when calculating installments for foreign-currency loans.
Banks are suing the state in court to prove the fairness of their lending practices going back as far as a decade.
“The latest levies could have dramatic consequences in a sector that’s been unprofitable since 2010,” Levente Kovacs, Secretary General of the Hungarian Banking Association, said in a Sept. 18 e-mail. “Overtaxing and the ‘holding to account’ through retroactive legislation have erased the profit of the past 20 years and a third of the banking industry’s capital.”
Lenders won’t be able to prove that what they did to borrowers was fair, the Economy Ministry in Budapest said in a written response to questions. “The government’s goal is to mete out justice and for borrowers to get back what banks took away unfairly and to finally have an era of fair banks.”
$4.1 Billion Refund
The latest round of refunds may cost banks as much as $4.1 billion, Antal Rogan, parliamentary leader of the ruling party, told reporters on Sept. 12.Orban’s government also plans to convert as much as $28 billion in foreign-currency consumer loans, including all mortgages, to forint next year. Orban’s ruling party has said it wants to carry out the conversion at below-market exchange rates, which banks reject.
“This may backfire because many banks are retrenching lending in response, damping the outlook for the next five to 10 years, while those who took out foreign-currency mortgages may still be unable to repay the loans,” said Akos Balla, owner of real estate agency Balla Ingatlan.
Poland, in contrast, wants to “nudge” banks to convert foreign-currency loans without forcing a “wholesale solution” on them as in Hungary, Polish central bank chief Marek Belka said on Aug. 28. Hungary’s approach is “more dangerous for the economy than not doing anything,” he said.
Spurring Lending
Hungary’s government is ready to “fine-tune” its range of taxes on banks in order to convince them to increase lending once foreign-currency loans are converted, Economy Minister Mihaly Varga said on Sept. 3.In the Tovaros condominium on the western outskirts of Budapest, where software developer Varga bought his apartment, 76 homes are still for sale out of 113 spread across eight, four-story buildings built in 2010. Apartments start at 300,000 forint a square meter.
The area is popular with young urbanites looking for open space without having to leave the city.
“There are still a lot of vacant building lots around where I live, so the neighborhood is still in flux,” Varga said. “But I’m glad I have my own flat, what’s more a newly built one in a nice location.”
No comments:
Post a Comment