The requirements for a home loan were tightened last year. In order to enable more people to finance property, the state wanted to assume liability – but the Financial Market Authority (FMA) has now rejected the idea.
The Credit Institutions Real Estate Financing Measures Ordinance (KIM Ordinance), which has been in force since last August, stipulates that 20 percent of your own funds are required to be able to take out a loan to buy or build a home. In addition, the monthly loan installment must not exceed 40 percent of the household income, and the term must not exceed 35 years.
According to the Financial Market Authority (FMA), the aim of the new requirements, which were previously recommendations, is for borrowers to be able to afford the loan – even if interest rates rise again, as is currently the case. The banks also paid attention to these rules for a long time, says FMA spokesman Klaus Grubelnik. From 2015 – “when interest rates were very low” – but they would have increasingly ignored them.
Criticism of equity ratio
State and bank representatives criticized the quota of 20 percent own funds last autumn as too high. Instead, they presented a model according to which people under the age of 35 only have to show 15 percent of their own funds, and the state would be liable for the remaining five percent. Governor Johanna Mikl-Leitner (ÖVP) wanted to implement the model in January – i.e. before the state elections – more on this in real estate loans: the state could be liable in the future (noe.ORF.at; October 14, 2022).
In January, the office of the state councilor responsible for housing, Martin Eichtinger (ÖVP), referred to a meeting between the FMA and bank representatives in February. At the time, the Financial Market Stability Committee also recommended minor changes to the ordinance, but these changes only include relaxations or exceptions to applicable regulations for interim financing and pre-financing of non-repayable grants by local authorities.
“Incompatible” with regulation
The proposal from Lower Austria, on the other hand, was rejected. According to FMA spokesman Grubelnik, the regulation is “not about mortgage security, but about the affordability of a loan”. For the individual borrower, a state guarantee would make the loan “not more affordable, it would only make it easier to get into debt”.
Ultimately, the banks would benefit from this, because more people would then be able to take out a loan. However, Grubelnik emphasizes that the liability model is “incompatible” with the KIM regulation and its objectives. There are currently such strict requirements in 23 European countries.
