As expected during the year, the new home loan market grew significantly in 2017: banks signed new contracts worth $ 650 billion in 12 months, up 39 percent from 2016, according to the report. BankSario based on official central bank data analysis. Not only is the $ 650 billion a significant increase compared to 2016, it has not been an example for more than 10 years; the last time more households were using forint-based home loans in 2003, the market was over $ 800 billion.
Home lending continues to be driven by low interest rates
Deferred borrowing in the years following the crisis, rising wages and a boom in the housing market. The detailed data also show that, although above-average, home loan loans with a fixed installment guarantee for more than 10 years increased by 42 percent, totaling $ 41 billion, which is only 6 percent of the total amount of $ 650 billion.
According to the analysis, examining the different types of loans reveals that there are significant risks to some of the loans. This is because most of the market was made up of floating rate loans, ie fixed-term mortgages for 3-12 months: banks signed contracts for a total of $ 300 billion, or 46%. According to Elisha Tucson, BankRation expert, the high rate of floating rate mortgages can be explained by the fact that they are often cheaper than mortgages that guarantee a fixed installment over several years, but are less predictable.
“Although repayment tranches of floating rate loans seem to be lower at first glance, they can pose enormous risks in the long run. If, during the term, the economic environment changes and interest rates rise, then the repayment installment for floating rate home loans will also increase. With a 20 year home loan of 10 million, with an initial interest rate of 4 percent, the monthly payment is 60 thousand dollars, but at 6 percent interest rate is already 72 thousand dollars, and at 8 percent, the monthly installment jumps to 84 thousand dollars. On the other hand, mortgages that are fixed for several years, mainly guaranteeing a fixed installment until the end of the term, are fully predictable and safe, because the monthly expenditure does not change during the given period, ”the expert said.
He added that while fixed-rate home loans are increasingly popular
they are considered a relatively new construction on the market, contributing to their lower rate throughout the placement. BankSario experts expect that in the future, long-term fixed mortgage loans will increasingly take on the market, thanks in part to the rating system for consumer-friendly home loans.