National Bank Governor announces new rules on mortgages

The Governor of the National Bank of Belgium Jan Smets has said that banks in Belgium grant mortgages too easily. Mr Smets was speaking during the presentation of the National Bank’s annual report. The banks eagerness to grant mortgages means that the average debt level among Belgians has risen. The National Bank plans to introduce measures to address the issue from the beginning of May.

Those of you that looking to buy or that have recently bought a home will no doubt have noticed that mortgage interest rates are (for the time being at least) low.

This means that lending money to buy a house or a flat is relatively cheap. However, low interest rates mean that people are inclined to lend more.

This can prove to be a dangerous move if the property bubble bursts and the value of a property falls below the amount lent from the bank in the form of a mortgage.

This can cause issue for the bank if a lender is unable to meet the repayments and the house has to be sold. A banking crisis can follow if lenders default and the banks are forced to sell properties below the value of the amount still outstanding on mortgages. The National Bank’s measures are intended to prevent this happening.

The National Bank wants potential buyers to pay a deposit of at least 20% of the value of the property before they can be granted a mortgage. This means that someone wishing to buy a flat or modest house for 250,000 euro would have to pay 50,000 euro towards the purchase up front before being granted a mortgage.

The 20% deposit would serve as a buffer to absorb any fall in property prices.
The National Bank of Belgium wants to introduce the new rules from May. However, it must first wait to be given the green light by the relevant European authorities.

The banks would still be able to grant mortgages to people that weren’t able to pay 20% of the value of a property up front. However, in such cases the bank that was issuing the mortgage would have to put a sum of money by that together the deposit would amount to 20% of the value of the property.

ING’s Chief Economist Peter Vanden Houte told VRT News that banks will pass on any extra costs of having to provide a buffer onto the customer.

"These kings of loans won’t disappear, but they will simply become more expensive. Mortgages are a typical means used to tie customers to a bank”.