24 October 2019 - 3 min Reading time
Today, the National Bank of Belgium (NBB) published new macro-prudential measures for banks and insurance companies active in providing housing loans. In recent weeks, we as a banking sector were consulted by the NBB about these new measures.
It is not the first time that the NBB has imposed macro-prudential measures. Macro-prudential measures for the residential real estate market were also introduced last and this year. Both measures mean that banks have to create more capital when they grant more loans.
The NBB judges that the share of risky loans in new mortgage loans is still too high, despite the measures taken earlier. The value of the loan relative to that of the collateral (LTV) continues to increase for new loans. This can mainly be explained by the competitive market in which the banks find themselves. Febelfin recognizes this problem and takes it seriously.
The sector realizes that responsible lending must remain the absolute starting point. Febelfin is on the same page as the regulator: lenders must exercise the necessary caution to, on the one hand, prevent individual borrowers from taking out loans that are too large and, on the other hand, to safeguard financial stability in the long term.
The measures are therefore considered balanced by the sector. These are not hard restrictions and still give the banks sufficient room to assess each file individually, within certain limits. For example, the measures are stricter for investment real estate and real estate intended for rental than for loans taken out for a first owner-occupied home. Providing loans to young families purchasing a home for the first time, even if this would be accompanied by a higher LTV, therefore remains possible. The measures are mainly intended to put a brake on some very risky loans: loans with a high LTV in combination with a high repayment burden or a high total debt burden.
The new measures are preventive and are intended to prevent possible risks in the future in a timely manner. After all, there are few problems today. Our country has a healthy mortgage credit policy. Defaults are limited to less than 1% of all mortgage loans. As shown in the report of the Central Office for Credit to Private Individuals, defaults have remained very low in Belgium for years, and have fallen even further in recent years.
In addition, we are characterized by a mortgage credit market in which the vast majority opt for fixed interest rates. Consumers are protected by legislation so that variable interest rates can double up to a maximum. This means that the risk for the consumer is much more limited in the event of possible interest rate increases in the future.
When granting credit, repayment capacity remains the most important criterion. The bank will examine each file thoroughly on a case-by-case basis, analyze the repayment capacity of the borrowers and, in many cases, require their own contribution. Responsible lending is of enormous importance and this must be maintained in the future.
The acceleration of the credit cycle noted by the NBB proves that Belgian banks have already successfully passed on the generous stimulus from monetary policy to households and companies. That was precisely the intention of the accommodative ECB policy: to make financing conditions very favorable in order to stimulate credit demand. But at the same time, the acceleration also shows the limits of monetary policy. On the one hand, banks have to pay interest to the ECB for parking excess liquidity (0.50%). To avoid negative interest rates, they grant more credit. But on the other hand, macro-prudential measures are being taken to moderate lending. But this of course does not alter the fact that responsible lending must always be the starting point, and lenders must exercise the necessary caution. Mortgage lending must always be done with great care, now and in the future.