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Housing Finance Market Overview

In Hungary, housing finance is raised from banks, mortgage banks and Bausparkassen. In 2007, banks had a market share of 57 per cent, mortgage banks of 38 per cent and Bausparkassen of 5 per cent. From 2001 to 2007, the Hungarian mortgage market was rapidly expanding. The mortgage debt to GDP ratio increased from 2.1 per cent in 2001 to 12.4 per cent in 2007.

The Market from the Perspective of the Demand Side

The typical loan-to-value (LTV) ratio is 70 percent for resale property and 80 percent for new-build property. Most mortgage loans taken out are loans with a fixed interest rate. In 2007, 47 per cent of all residential mortgage loans were denominated in foreign currency especially in Swiss Franc. In the course of the financial crisis, Swiss franc housing loans have been withdrawn at the end of 2008 and the value of foreign denominated housing loans, as measured in their original currency, continues to drop. In June 2010 the government even decided to ban banks from offering foreign currency-based residential mortgage loans. In September 2011, the Hungarian Parliament approved the option for early repayment of household foreign currency mortgage loans at a preferential exchange rate (discount of about 25% compared to market rates) - the corresponding losses being incurred by the banks. Especially three Austrian banks are affected by this decision.

House Price Development

There is no good source for house prices in Hungary. However, the data available assumes that periods of strong house price increases (1999-2000 and 2003 to 2004, with annual growth rates from 20 to 30 per cent) have been followed by periods of stagnating or even falling house prices. Since 2004, prices have been falling according to the Hungarian Central Bank.

Special Characteristics of the Market

Hungary has a contractual savings system, the Bauspar system which is characterized by low interest rates on loans and a government interest premium paid on savings. It is offered by specialised credit institutions, the Bausparkassen. The government grants an interest premium on the amount saved (up to a set maximum).

Refinancing Instruments

The credit institutions fund their lending activities through the usage of deposits and the issuance of Covered Bonds. Outstanding Covered Bonds equalled to 47.9 per cent of all outstanding residential lending in 2007. Funding mortgage loans through Covered Bonds is legally constrained by a LTV ratio limit of 70 per cent.

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