Regulation expires

Criteria for home loans could be relaxed

Will the criteria for home loans remain strict or will they be relaxed in 2025?

(Bild: Shisu_ka/stock.adobe.com)

A regulation that provided for strict rules for the granting of home loans will expire next year. However, the Financial Market Stability Board (FMSG) expects banks to continue to adhere to the established lending standards in future.

These have contributed to the fact that fewer home loans have defaulted, for example, the committee announced on Monday. The regulation, which was introduced at the beginning of August 2022, is limited until June 30, 2025. As "no systemic risk (...) can currently be identified", the regulation will actually expire.

The so-called Credit Institutions Real Estate Financing Measures Ordinance (KIM-VO) stipulates that housing loans cannot run for longer than 35 years. The equity share must be at least 20 percent and the repayment installment may not exceed 40 percent of net disposable income. According to the FMSG, it is conceivable that the banks will continue to comply with the established standards voluntarily.

The fact is that even in the current difficult economic situation, people in Austria are meeting their housing finance obligations almost without interruption.

Michael Höllerer, Wirtschaftskammer Österreich

The ball is in the OeNB and FMA's court
The Oesterreichische Nationalbank (OeNB) and the Financial Market Authority (FMA) should now examine measures such as guidelines and capital-based measures. Possibilities include additional capital buffers and higher risk weights. In good economic times, a higher buffer could be used to build up capital and curb credit growth, while in poorer economic times the buffer could be reduced again to counteract the fact that the supply of credit is becoming increasingly scarce.

The Austrian Federal Economic Chamber and the Austrian Economic Association expect the expiry to "facilitate housing finance options". "The fact is that even in the current difficult economic situation, people in Austria are meeting their housing finance obligations almost without interruption. However, the expiry of the KIM regulation will set an important course for overcoming the trough in residential construction financing," said Michael Höllerer, Chairman of the Federal Bank and Insurance Division.

Committee warns of risks
"In recent years, the KIM regulation has been such a high hurdle for the purchase of residential property that new residential construction was on the verge of collapse," commented Karlheinz Kopf (ÖVP), Secretary General of the Chamber of Commerce.

"However, the committee expressly points out that there are still significant risks for the financial system - especially in the event of declining capital ratios combined with a possible return to unsustainable lending standards and a decoupling of the development of real estate prices from that of incomes," a less optimistic FMSG statement reads.