The MNB is one of the first in Europe to apply the 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-Servive-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: ESRB
Properly calibrated limits at the level of each loans 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 buffers, 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.
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.
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. For detailed rules, see the Borrower-based Measures Regulation (available in Hungarian) and the related Frequently Asked Questions (available in Hungarian) document. Source: MNB
Current limits of the LTV ratio
HUF | EUR | Other currency | |
Mortgage loans | 80% | 50% | 35% |
Motor vehicle loans | 75% | 45% | 30% |
Note: For financial leasing, LTV limits may be 5 percentage points higher. 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 | More than 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 of HUF 600k or more | 30% | 40% | 60% |
*Lower limits apply to foreign currency loans. Source: MNB
Debt-to-Income ratio (DTI)
The amendment to the MNB Act, which entered into force on 1 January 2023, created the legal possibility to introduce the income-based loan limit indicator, which sets the maximum amount of loans that debtors can borrow or the maximum amount of aggregate debt they can incur, in proportion to their income, usually annual. Such a provision could reduce the possibility of circumventing the regulatory objective pursued by the DSTI limit, thus enhancing the effectiveness of the limits, the application of which is currently being explored by the MNB. The timing and calibration of its application will be decided by the Financial Stability Board of the MNB in consultation with market participants, depending on the evolution of risks.
Regulatory changes
Based on the evolution of credit market risks and feedback from market participants, the MNB continuously assesses the effectiveness of the borrower-based measures framework, on the basis of which it has now refined the regulatory framework in several areas:
Modifications to the borrower-based measures framework
Applicable from | Modification | Details |
1 July 2023 |
Increasing the threshold value of DSTI limits
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Press release on the modifications of the instrument, 1 July 2023 (available in Hungarian) |
1 January 2023 | Expanding the toolkit of borrower-based measures
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1 January 2022 | Supporting the smooth application of the borrower-based provisions
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Press release on the modifications of the instrument, 17 November 2021 (available in Hungarian) |
20 February 2021 | Adoption of statistical valuation in the LTV calculation
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Press release on the modifications of the instrument, 15 February 2021 (available in Hungarian) |
1 July 2019 | Increasing the threshold for DSTI limits
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Press release on the modifications of the instrument, 22 August 2018 (available in Hungarian) |
1 October 2018 | Differentiation of DSTI limits based on the interest rate risk of housing loans
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1 May 2016 | Encouraging the take-up of loans with longer interest periods
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Press release on the modifications of the instrument, 23 March 2016 (available in Hungarian) |
1 January 2015 | MNB introduces DSTI and LTV rules
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Press release on the modifications of the instrument, 27 August 2014 (available in Hungarian) |
Frequently Asked Questions
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