There is a gap in the mortgage market, particularly in terms of risks between new and existing loans – the latest compilation by Good Finance, a member of the real estate group, points out that interest rate risk may increase in the next period.
“More than 70 percent of new home loans provide a fixed installment over several years, making them more predictable and secure.
Floating rate schemes are risky
However, floating rate schemes are risky because they can be higher in the short term if market interest rates rise within 3-12 months. However, this could happen in the future, especially when a home loan is a decade in the future, “said Good Finance, a loan expert at Good Finance.
The Hungarian central bank has not yet tightened its monetary conditions, which fundamentally affect lending rates, but may occur at some point in the future, depending on inflation. If this is the case, it may lead to an increase in retail lending rates.
The series of interest rate
In addition, international processes, the series of interest rate hikes that the US central bank has already begun and the move by the European Central Bank towards less relaxed conditions are exacerbating interest rate risks. However, the share of floating-rate retail loans is very significant, according to official central bank data, at 62% at the end of last year.
The monthly repayment of a home loan with a current interest rate of 3 percent for a further 10 years is HUF 48-49 thousand, however, a 2 or 3 percentage point increase in interest may result in a 10-11 and 16-17 percent monthly increase, respectively. And the total repayment can increase by hundreds of thousands, or worse, by millions.
Home loans guaranteeing a fixed repayment
According to Good Finance, home loans guaranteeing a fixed repayment for the longest time, preferably until the end of the term, provide protection against interest rate risk.
They are predictable, because even after a possible interest rate increase, the expenditure will not be higher. For existing, risky variable rate mortgages, the solution is for debtors to swap them for a fixed rate loan.