Reviewing the current Hungarian mortgage regulation is a vital precondition for stable mortgage lending relying on long-term funding, as well as for creating an active mortgage bond market supporting it. In order to ensure that institutions have adequate lead time to prepare themselves to adjust to expected legal changes, today the central bank’s Financial Stability Board modified the date of entry into force of the Decree on the regulation of credit institutions’ forint maturity match to 1 April 2017, granting them an extension of six months.
In June 2015, the MNB issued a Decree which requires domestic credit institutions to finance at least 15 per cent of their stock of forint mortgage loans to households through long-term, mortgage-backed forint liabilities. In addition to reducing the excessive forint maturity mismatch, the action may contribute to the revival of the domestic mortgage bond market and support wider use of mortgage loans with longer interest periods and lower credit risk.
A proper legal background for mortgage liens is a key ingredient of a properly functioning mortgage bond market, which is currently not supported adequately by seceded mortgages introduced by the new Civil Code. Such a legal instrument is unknown in European banking regulation and no major mortgage bond issue has taken place at home or abroad since it entered into force. For this reason, the reintroduction of non-accessory independent mortgage liens is indispensable in order to create harmony with European financial regulations and to develop of a homogenous mortgage bond market.
It is expected that the regulatory changes facilitating the ability to finance the outstanding stock of loans through mortgage bonds will be implemented in the spring of 2016. The MNB’s Financial Stability Board has modified the date of entry into force of its regulation from 1 October 2016 to 1 April 2017, in order to ensure that credit institutions are able to comply with the mortgage funding requirements under the new mortgage rules. In this way, banks will have more time to prepare either by establishing their own mortgage bank or by entering into refinancing agreements. With the amendment, a so-called de minimis rule will also be introduced, which will exempt institutions with a stock of net loans to households that is systemically not important and of a value of less than HUF 3 billion.
The new deadline will allow enough time for institutions to comply with the provisions of the Decree in view of the changing regulatory environment, and it is at the same time consistent with the opinion expressed by the European Central Bank about the MNB Decree in question.
The text of the MNB Decree on the amendment is expected to be published in the Hungarian Gazette in early March 2016.