Government cabinet decided to halt the rise of interest rates on households' mortgage loans

HUNGARY - In Brief 22 Dec 2021 by Istvan Racz

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Today, the government cabinet decided to freeze the interest rates of existing (= not new) variable-rate mortgage loans at the end-October, 2021 level for the whole of H1 2022. This means that banks will not be able to charge more than this level even if the loan contract allowed them to do so.Politically, the step is perfectly meaningful. Lately, the MNB has raised the sterilisation rate once a week, and that raises BUBOR, which is typically the interest-rate basis to which the effective rates payable on variable-rate mortgages are linked. And they (= Fidesz) do not want to lose the election in April. Once the election is passed, the government will most likely allow everything to return to the path of normality again. Legally, it may be questionable, as the government is interfering with private contracts, but no problem (from the government's point of view), as they indirectly dominate the Constitutional Court, and have a significant influence on the Supreme Court as well.In concrete terms, this measure will affect about 470 thousand loan contracts, with a total value of HUF2000bn. The government has estimated the total cost for the banking sector to be some HUF30bn. In January-September, the annualised net profit of the banking sector was 13.6% in ROE terms, and this measure will likely reduce 2022 ROE by about 0.5% point.Obviously, the measure is no good for the domestic stock market, and especially for OTP. It also runs counter to the MNB's tightening efforts, although this impact can be relatively small, as new loans will not be affected. The MNB will have to raise interest rates a bit more than it would have to without this measure.