From October 1, borrowers’ options will be further narrowed
From the table above it is clear that a new dimension has been introduced based on the chosen interest period. Thus, in the case of borrowing with an interest rate shorter than 5 years, the income, thus the maximum amount of credit that can be taken, can be halved.
Individual effects of the Regulation
Basically, I believe that anyone who cannot manage the repayment installment of a 10-year loan (interest-rate period) permanently should not be able to take an interest-rate loan within a year because it is a very dangerous financial decision! However, there are many situations where a short interest period is not a threat to the livelihood but, for example, due to a life situation the creditworthiness is limited or the short interest period is a conscious choice. The opportunities for these groups are noticeably reduced or need to involve additional co-debtors:
- Unrecognized Income: Some have significant reported earnings, which few banks take into account, and only under special circumstances, such as dividends, rents, and occasional non-business income. Rental income is accepted by a small number of banks, even if it has been settled for years, but if it comes in cash, you will have to look for a magnifying glass to accept it without discount. Perhaps it is worth asking the question of when a property will go for sick pay or when it will lose its earning capacity, when will it be part of a layoff? And it can even be secured so it is not alienated.
- Pregnant women: In current practice, the actual income of a pregnant woman is at best taken into account to a limited extent, while the income of a future State Treasury after childbirth is TGYÁS and GYED is only counted in the household income as there is no justification. I will be provocative: maybe the assumption that a woman as a mother is no longer so valuable on the job market might not be able to reintegrate into the job market during the typically long term of home loans?
- Job switching: You can’t get a small home loan, even if you have a job change, even if you have a university degree and have been in the profession for 20 years, and within that you have changed jobs for a higher salary. It only matters that you are now on probation and not creditworthy. But even my client was not creditworthy at many banks that work in the same place, have no probation, have been recognized for years of work, just a law firm that employs him, and changed his job to another.
- Fresh business: If your business does not have a closed tax year (most banks even require 12 months of operations in the previous year), no matter why you change and what qualifications you have, you simply do not take into account your income. So, in such a case, for 1.5 to 2 years before your new tax year closes, your income is not taken into account.
- Consciously Choosing a Short Interest Period: Some people know that within a few years, for example, they are paying off their mortgage bills or other savings to a large extent, or fully replacing their loans, or they may have other high-yield savings that would be mobilized if mortgage rates increase. The regulations have reduced their chances by half.
- High Income Growth: I recognize that this could not be recognized in bank risk management. But I have repeatedly taken short-term loans – naturally with the right safe B plan home savings account and other security reserves – at a high income with my young, unique, newbie, or for other reasons, currently earning less than their expected income in a few years . It will be much more difficult for them to find their own home in the current circumstances.
Overall social effects of the Regulation
The regulator aims to further move retail borrowing towards safer (longer-term) credit products. Although, in April 2018, 81% of the Hungarian households’ new home loans, when they felt the forefront of interest rate hikes, had an interest rate over one year (3-5-10-15 years or fixed).
So the Hungarian population has taken a relatively low level of risk, which is no wonder, because the difference between fixed and variable loans is so small. Regardless , of course, at the level of the whole society, it is a very important goal not to ask everyone for help afterwards, not to wait for the government rescue package, but to be proactive .
I see the problem from an overall societal point of view
Which is not accompanied by the notion of education that is becoming increasingly stringent . I do not know what they are taught in the Financial Examination Authority exam because I did not have to pass a professional qualification when I started in mediation, but no bank education had any timeline on interest rate risk, no chart showing the impact of interest rate changes! Of course, we give the client the mandatory information on the $ 5 million loan amount, but much more attention could be paid to the description of interest rate risk and risk preference. And unfortunately, the population is not educated, even though a conscious, responsible decision can be made in the light of this.