MNI INTERVIEW: NBH FinStab Move Signals Clear Concern - Ex-DG

The decision by Hungary’s central bank on Monday to tighten financial stability conditions for mortgage lenders is an attempt to contain risks arising from the government’s recently announced “Otthon Start” subsidised loans scheme, a former deputy governor told MNI. 

“Hungary’s real estate market is already overheated,” Julia Kiraly said. “The fact that the central bank is tightening financial stability conditions clearly suggests they are very concerned that the Otthon Start programme could be a problem from a financial stability perspective.”

From next year banks must hold a 1% systemic risk capital buffer for both residential and commercial real estate loans. 

The NBH also raised the income threshold that allows for mortgages with a debt-to-income ratio of up to 60% - last adjusted in 2023 - from HUF600,000 to HUF800,000, and increased the limit for small loans exempt from debt brake requirements from HUF450,000 to HUF550,000.

“In financial stability terms it has made the situation a lot safer,” Kiraly said in an interview.

“It was clearly supported by the banks, which get to increase their capital as a result of the [Otthon Start] subsidy. But we don’t know what will happen in two months’ time, let alone a year. You can never know what will happen on the political scene or with the credit rating agencies’ next decisions.”

Age restrictions for more favourable downpayment restrictions were abolished, though these were already “hard to support and, in fact, not taken very seriously,” Kiraly said.

The NBH next meets to decide on rates on Sept 23, when updated inflation projections are also due. Despite the likelihood that inflation will fall more slowly, recent forint strength means that market volatility has decreased to a stable and tolerable level, Kiraly said, making a longer-term period of wait-and-see - as signalled by the Bank - the correct policy course. (See MNI EM NBH WATCH: Rate Hold, Price Risks Seen Despite Weak Growth)

“The overall economic and political situation, which remains turbulent, and the uncertainty created by U.S. monetary and tariff policy, means not doing anything is really a good reaction at this point,” she said.

“That would imply that the central bank would be prepared to tolerate inflation edging slightly higher than it is now. I wouldn't expect higher inflation, but I’m less sure that the decline of inflation will be at the speed that was expected one year ago, let’s say.”

From an economic point of view, Hungary is now a “much more solid place” she said, with developments at the FOMC likely to be of great concern to the NBH than political pressure at home.