Athens, March 22, 2024 - In a move to prevent over-lending and promote responsible borrowing practices, the Bank of Greece has announced new limits on mortgages. The decision, made by Governor Yannis Stournaras, aims to establish a maximum loan threshold based on the property's value and a cap on debt servicing in relation to the borrower's income.
Set to take effect from January 1, 2025, these limits aim to address concerns over excessive borrowing and unsustainable debt levels. Key provisions of the new regulations include:
- Loan-to-Value Ratio: The maximum loan amount issued by banks will be capped at 80% of the property's commercial value. However, first-time buyers can avail loans up to 90% of the property value, providing greater accessibility to young individuals looking to enter the housing market.
- Debt Servicing Limit: Borrowers will be subject to a stringent cap on the proportion of their income allocated to servicing mortgage repayments. The ceiling will be set at 40% of the borrower's annual income. However, to facilitate homeownership for young buyers, this limit will be raised to 50%.
To strike a balance between prudent lending practices and meeting market demands, banks will be permitted to exceed these limits for up to 10% of new disbursements. Furthermore, any excess lending will be closely monitored and tracked separately for first-time buyers and other borrowers.
The implementation of mortgage limits aligns Greece with numerous European nations already employing such measures. However, it is worth noting that the limits introduced by the Bank of Greece are relatively less stringent compared to those in many other European countries.
Governor Stournaras acknowledges the importance of ensuring long-term financial stability by preventing excessive lending and safeguarding borrowers from debt distress. These new measures seek to strike a balance, enabling responsible lending without hindering credit availability to potential homebuyers.
The classification of a "new buyer" is not purely limited to individuals entering the housing market for the very first time. It encompasses those who are resorting to bank borrowing for the first time to purchase a property, regardless of whether they already own other real estate.
In addition, when calculating the debt service ratio, all existing debts held by the borrower, such as consumer loans or credit card balances, will be considered alongside mortgage installments. The net income, after accounting for tax and social security obligations, will be used as the benchmark for assessing the debt service ratio.
The Bank of Greece's decision to introduce mortgage limits underscores its commitment to maintaining a stable and sustainable housing market. By striking the right balance between facilitating homeownership and averting potential systemic risks, policymakers hope to foster a healthy lending environment that benefits both borrowers and the wider economy.
With these measures set to come into effect next year, industry stakeholders anticipate a more cautious and prudent lending landscape, which could contribute to long-term financial stability and economic growth.
