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Based on the recommendation of the MNB issued in April 2019, in the coming months, for the second time since last year, banks will send written notices to their retail clients whose variable rate mortgage loan contracts concluded before 1 February 2015 (the entry into force of the fair banking regulation) have at least 10 have a residual maturity of one year and pay their fees properly (or have a delay of up to 90 days).
According to data from the central bank this year
In September, consumers had between 85 and 90 thousand such contracts, the volume of which amounted to between 550 and 600 billion guilders. This is a good one-third decrease compared to the number of 130,000 contracts at the end of 2018, amounting to 900 billion HUF, affected by the disclosure obligation.
The main reason for the decline is that many loans matured within 10 years, while within the new disbursement, interest rate products for a period of five years or more became dominant. In addition, after the credit institutions sent more than 100,000 letters of formal notification as of January 31 of this year, Several clients have already taken the opportunity to modify the contract and have fixed their credit.
This is a measured wording on the part of the central bank, not by chance: we know that quite a few have used the fixation facility so far, this is a negligible fraction of the 130,000 previously affected clients.
Banking information can be sent to affected customers by letter, email or netbank (along with a warning SMS). In these, lenders demonstrate the potential impact of a possible future interest rate increase on variable rate home loans using a sample calculation for a specific customer loan. They point out that the fee (depending on the type of variable rate loan) can vary up to every 3 months.
To eliminate this risk, financial institutions offer their clients a switch to longer-term fixed-rate mortgages, in line with the expectations of the MNB. At least two of the fixed rate schemes are presented, fixed at 5 and 10 years, and fixed rate until the end of a term, projecting the effects of the fixed interest rate on the customer’s credit. Of the options offered, clients can switch to a longer interest rate fix if necessary. Those who do not fix their loan in this way with a contract modification and the remaining term of their loan exceeds 10 years will continue to receive the same attention once a year, with updated content.
Variable interest rates also pose a risk to those who choose a default on repayment now or in the future. According to the rules, after the expiration of the suspension of payment, your monthly payment cannot be higher than it would be without the moratorium, but in the case of floating rate loans (mortgages), lenders can enforce the effects of changes in the interest rate. Therefore, with these loans, clients may have to pay more per month than before. However, within the fixed period (interest period), the financial institution cannot increase the interest rate and the customer’s monthly debt load cannot increase.
Two forms of fixation are (also) important for a payment moratorium. This can be done, on the one hand, by redeeming a loan, which requires the assistance of another bank, and, on the other hand, by modifying the contract according to the recommendation of the central bank.
If the consumer in the moratorium chooses to replace the credit, which also means a new credit agreement, the safety net of the moratorium will be removed. However, in the case of a contract modification, only the original contract is changed, the interest rate changes.
In the latter case, therefore, there is no new disbursement of the loan, so the contract continues to enjoy the protection of a payment moratorium.
Furthermore, in the case of a modification of a contract within the bank, the fees and related costs will also be more favorable, since In this case, the prepayment, valuation and disbursement fee incurred at the time of loan repayment can also be avoided.. When modifying a fixing contract, financial institutions cannot charge more than the costs and fees directly related to it. The option to modify the contract according to the bank prospectus is available to affected customers for at least 30 days, but they can also request it at any time.
Cover image: Shutterstock
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