The flexible way in which the lender grants cheap home loans to customers has long been a thorn in the eyes of the NBB. It is not the first time that the central lender has blamed lenders. For example, they decided last year that the lender should set aside more capital for risky mortgages, such as a high-quota mortgage (the ratio between the loan amount and the current market value of the home).
Some lender increases the price tag of the home loan if the borrower does not meet certain conditions. A comparison of different rate sheets shows that the lender increases the rate by ten basis points with a loan higher than 80 percent of the market value.
We see one of the most striking increases. The large lender increases the rate by 1 percentage point if someone borrows more than 90 percent of the estimated value of the home. “Despite the restrictive measures taken by the NBB in May 2018 in view of the increasing indebtedness of households, the majority of lender indicated that they would not tighten their credit terms in the short term,” the NBB reports.
The number of risky loans is increasing
They see an increase in risky loans. Recent figures show that 35 to 40 percent of home loans are issued over more than 90 percent of home value. Almost half of the home loans are granted to people who borrow more than 80 percent of the value of the property.
According to the NBB, this is the result of fierce competition in the mortgage market. For a lender, the home loan is the means par excellence for keeping a customer in the long term. Once someone has taken out a mortgage loan, selling by-products is easier.
The thorough price battle is not without risks. The high quota is, after all, accompanied by more vulnerability. The lender is in danger of getting burdened with losses if a property is forced to be sold by the borrower that the borrower does not meet his financial obligations.
At the moment it is still a warning from the NBB. “If necessary, we will indeed have to look at measures,” it sounds.
The NBB can in any case count on the support of the politicians. Alexander De Croo, resigning Minister of Finance has already indicated that he has no problems with it if the NBB wants to take extra measures. Febelfin, the Belgian federation of the financial sector, also indicates that it is prepared to agree to additional measures.
The most surprising support comes from the financial sector itself. For example, Johan Thijs, CEO at KBC in 2017, argued for a limitation of the credit to 80 percent of the purchase price. “In the past, buyers were able to put a fairly high input on the table. Now borrowers are finding it increasingly difficult to cough up their own contribution due to high house prices, “said the CEO.
To date, it is unclear what measures the NBB is willing to take if the lender continues to take large risks when granting a mortgage loan.
Low-interest rates persist
In any case, we should not be afraid of a sudden rise in interest rates. From the minutes of the January interest rate meeting recently released by the European lender, we can see that the chances are very small that they will raise interest rates shortly after this summer. Several experts have already indicated in the past that a first interest rate increase will only be before 2019 or 2020.
The ECB has already stopped its buy-back program in December, but Mario Draghi, the chairman of the lender, recently said that “his toolbox is still full of instruments.” by that statement.
In any case, the average interest rate for a housing loan remains particularly favorable at the moment. Anyone who today takes out a 25-year housing loan with a quota below 80 percent pays a fixed interest rate of 2.02 percent on average.