site.btaCentral Bank Governor: Newly Introduced Mortgage Loan Requirements Aim to Handle Expansion, Not Stagnation

At a sitting here on Wednesday, the Bulgarian National Bank (BNB) Governing Council approved the introduction of new requirements with respect to the indicators on lending standards when originating and renegotiating new loans, secured by residential real estate. The new requirements are introduced against the backdrop of continued expansion in the sector of housing loans, where the growth reached nearly 25% on an annual basis in July. The registered increase comes after the central bank in spring told commercial banks which indicators on lending loans collateralized by residential real estate they should observe. Back then, housing loans were again registering double-digit growth.

In this relation, BTA's Spas Stambolski approached BNB Governor Dimitar Radev with several questions. Radev said that the introduction of new lending requirements is a logical step in the central bank's systematic approach to the topic. He recalled that earlier this year, BNB transitioned from statistical to supervisory monitoring of mortgage loans with the corresponding compulsory requirements for banks. The effect sought is one of handling the expansion, and not stagnation when it comes to loans collateralized by residential real estate.

Radev also told BTA that the measures will not affect current borrowers.

Following is the full text of the interview.

Mr Radev, BNB has announced new standard lending requirements for loans collateralized by residential real estate. Would you summarize what these are about?

These are limits banks must apply to indicators on lending standards that go into effect on October 1. Firstly, the ratio between the loan amount and the value of the immovable property at origination shall not exceed 85%. Secondly, the ratio between the current debt service amount and the monthly disposable income of the debtor at origination shall not exceed 50%. Thirdly, the maximum term of the loan agreement shall not exceed 30 years.

You permit up to 5% of mortgage loans to deviate from these requirements. Why?

So that specific cases would be covered.

For example?

For example, when the residential real estate is not the only type of collateral used.

You have said several types over the past year that BNB is ready to introduce such measures. Why do it now?

We reacted to the trends on the mortgage market, which have been deepening in the past months and which we regularly inform the public about. This decision is a logical step in our systematic approach to this topic. Let me recall that earlier this year, we transitioned  from statistical to supervisory monitoring of mortgage loans with the corresponding compulsory requirements for banks.

Will banks succeed in preparing for the application of these measures as of October 1?

Without any doubt. The system for effective management of the process has been fully built and includes methodology, accountability, and mechanisms for control.

What is the effect expected from the measures' application?

The effect expected and sought is to handle the expansion, and not stagnation regarding loans collateralized by residential real estate.

Regarding consumers, how will these measures affect borrowers? Will existing mortgage loans be affected in some way?

No, the existing loan agreements are not affected by these measures, which are applicable only to new borrowers. The idea is, in addition to everything else, to protect them from excessive debts.