The MNB is one of the first in Europe to apply legally binding borrower-based rules from 1 January 2015. The instruments introduced in MNB Decree 32/2014 (IX. 10.) on the regulation of the loan-to-value ratio and the debt-service-to-income ratio (hereinafter: Borrower-based Measures Regulation (available in Hungarian) comprise the so-called Loan-to-Value ratio (LTV) and the Debt-Service-to-Income ratio (DSTI). The LTV determines the maximum amount of credit that borrowers can borrow in proportion to the market value determined at the time of credit assessment, while the DSTI determines the maximum amount of repayments that borrowers can make in proportion to their regular net certified monthly income.
The transmission mechanism of the debt brake provisions
Source: MNB edition based on ESRB (2018)
Properly calibrated limits at the level of each loan will target and discourage excessively risky lending, thereby maintaining a healthy lending structure and reducing the likelihood and extent of cyclical risk build-up. They can thus be an effective complement to countercyclical capital buffer, since while the capital buffer acts on the supply side, the debt brake rules act on the demand side of the credit market. The instruments reduce both the default risk of debtors and the credit risk of lending institutions by reducing the expected loss on default. The instruments can be calibrated to the evolution of risk in a targeted way, minimising unwanted side effects, because of their individual credit contract-level impact. Borrower-based measures also have an important consumer protection and financial awareness role, as they limit the maximum debt and repayment burden that can be incurred at an individual level, thereby reducing the risk of potential social problems.
As of January 1, 2025, green aspects will also be incorporated in the regulation: higher DSTI and LTV-limits will be applicable in case of real estate purchases and loans for renovation purposes that finance the purchase and construction of energy-efficient apartments and efficiency-enhancing renovations.
Loan-to-Value ratio (LTV)
The Loan-to-Value ratio (LTV) shows the maximum amount of credit that can be borrowed in proportion to the market value determined at the time of credit assessment.
From January 1, 2024, the MNB has decided to apply a 10 percentage-points-higher, 90% LTV-limit for young first-time homebuyers. The lower down payment requirement extends to clients under the age 41 who do not currently own and have never owned at least 50 percent in any residential unit. If a usufructuary right based on legislation exists on the concerned properties (e.g., through inheritance), the borrowers can still benefit from the discount. In case of multiple borrowers, each co-borrower must meet these conditions.
Calculation and working mechanism of LTV (for loans secured on real estate)
Note: LTV-limit according to the main rule. The market value determined at the time of credit assessment may differ from the actual purchase price paid by the borrower. Limits pertaining to first-time homebuyers are shown in brackets.
Current LTV-limits
|
LTV-limits |
||||
| Category | HUF | EUR | Other currency | |
| Mortgages | First-time buyers | 90% | 50% | 35% |
| Green collateral and loan purpose* | ||||
| Financial lease | First-time buyers | 55% | 40% | |
| Green collateral and loan purpose* | ||||
| Mortgages | Other borrowers | 80% | 50% | 35% |
| Financial lease | 85% | 55% | 40% | |
| Vehicle loans | 75% | 45% | 30% | |
*From 1 January 2025. For detailed rules, see the Borrower-based Measures Regulation (available in Hungarian) and the related Frequently Asked Questions (available in Hungarian) document. Source: MNB
Debt-Service-to-Income ratio (DSTI)
The Debt-Service-to-Income ratio (DSTI) sets the maximum repayment rate that borrowers can afford as a percentage of their monthly net, certified, regular income.
Calculation and working mechanism of the DSTI
Note: DSTI-limit according to the main rule. For detailed rules, see the Borrower-based Measures Regulation (available in Hungarian) and the related Frequently Asked Questions (available in Hungarian) document. Source: MNB
Limits of DSTI for mortgages with a maturity of less than 5 years and unsecured loans
| HUF | EUR | Other currency | |
| Net monthly income below HUF 600k | 50% | 25% | 10% |
|
Net monthly income of HUF 600k or more |
60% | 30% | 15% |
Source: MNB
Since October 2018, for mortgage loans with a maturity of more than 5 years, the applicable income-based repayment limit also depends on the interest period of the loans. Loans with a shorter interest period, which are more exposed to interest rate risk, are subject to lower DSTI-limits as follows:
Limits of DSTI for HUF mortgage loans with a maturity of at least 5 years*
| Period of interest | |||
| Less than 5 years | At least 5 years but less than 10 years | At least 10 years or fix | |
| Net monthly income below HUF 600k | 25% | 35% | 50% |
| Net monthly income below HUF 600k in case of green loan purpose** | 25% | 35% | 60% |
| Net monthly income of HUF 600k or more | 30% | 40% | 60% |
*Lower limits apply to foreign currency loans. ** From 1 January 2025. Source: MNB