The rapid rise in the price of real estate and the great willingness of banks to finance home purchases with ultra-cheap loans are worrying financial supervisors in more and more countries.

Austria’s financial supervisory authority recently announced that it would impose stricter rules on banks for lending and lending.

Ultimately, this should protect both sides: borrower and lender.

Andreas Mihm

Business correspondent for Austria, East-Central and Southeastern Europe and Turkey based in Vienna.

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But many buyers are likely to interpret this as bad news: "A lending limit of 80 percent could end the dream of home ownership for many middle-income households," says Reber Acar from the Scope rating agency.

The analyst warns: "The exclusion of a large part of the population from the real estate market could lead to social tension and do more harm than good."

Yet it is not so far.

But in the middle of the new year, stricter guidelines are to be enforced in Austria, decided the representatives of the finance ministry, the central bank and the financial supervisory authority in the Financial Market Stability Committee (FMGS).

The FMGS has been warning of systemic risks in residential property financing for a long time; it had previously warned banks to be cautious.

Three criteria for sustainable loans

Obviously in vain. The guideline on sustainable lending of mortgages is not being adequately complied with, complains the Viennese supervisory authority: “A large number of borrowers remain vulnerable to short-term changes in interest rates. A large part of the newly granted real estate loans will continue to be granted with excessive debt service and loan-to-value ratios.

As a benchmark for sustainable real estate lending, three criteria are given.

First: The borrower should raise 20 percent of the purchase price from their own resources.

"Equity shares below a guide value of 20 percent are viewed as critical." Loans of more than 80 percent of the market value would no longer be possible.

Second, the loan terms should "not be disproportionately long".

Terms of more than 35 years would have to be the exception, the income development of the borrower in the life cycle had to be taken into account.

Thirdly, the banks should make sure that the borrower does not take on the debt.

The basis for this must be a conservative calculation of household income and expenditure, which should only take into account those incomes that come regularly and are sustainable.

Amortization and interest payments should not amount to more than 30 to 40 percent of the net income.

The Czech Republic also supports young buyers

Austria is not alone with such plans.

In Switzerland, borrowers have long had to pay up to 20 percent of the costs from their own funds.

In Belgium, the ancillary acquisition costs and at least 10 percent of the purchase price must be available as equity since 2020.

In Denmark there is a lending limit for private houses of 80 percent (holiday homes 75 percent) with a maximum credit period of 30 years.