On March 1 the Hungarian government has maximized the loan to value (LTV) on mortgage loans, setting a 75% limit in case of Hungarian forint (HUF) loans and 60% in case of euro loans. Swiss francs and other currency loans cannot exceed 45% of the value. These percentages apply to the value of the property as determined by the bank, so the real figures are closer to 65% and 50%, respectively. Reason: Household debt has significantly risen in Hungary over the past two years and the government wants to decrease the risk of personal bankruptcies and resulting foreclosures.
From June 11 collateral alone will not be enough; the applicant's credit record, personal financial statement, and net income will determine whether they are eligible for the loan. Most banks already operate under such conditions; the government regulation merely formalized the existing situation, preventing banks from returning to more liberal practices after the recession. On the one hand this is a guarantee for more stability and less foreclosures in the future, on the other hand there will be much fewer loan applications (last year household loans already dropped sharply to a mere 20% of the previous year's turnover), it will take longer for the economy and the property market to wake up from its long slumber. The reason net income is such a problem is the fact that much of the economy is still in the grey. Hungarians have money, but are unwilling to declare it.
Why is this important? Investors seeking to exit and resell on the local market must take into consideration the incentives offered by the government to potential buyers. It seems the situation will not improve in the near future; it will not be easier to get a mortgage loan. Therefore we suggest furnishing and improving the property to attract a stable tenant, otherwise radically reducing the price to be able to sell.
 
Real estate experts speak of a needed annual 40,000 new units in the country for any quality changes to appear on the residential market. There were altogether 32,000 units completed in 2009. Projections for 2010 point to merely 19,000 units, which would be a 50-year-low. Since 1991, 2009 was the first year when the number of units handed over exceeded the number of units planned. In order to boost the economy, the real estate industry is anticipating government-subsidized loans from the new administration when it launches its program this summer after the elections, but nobody has suggested a source for this budget yet.
Some good news: Government has also maximized the penalty payable when repaying the principal before the term of the loan expires; it cannot exceed 2% of the repaid amount. This only applies to loans taken after March 1, 2010. Why is this important? The penalty for early-repayment used to be higher. Investors can now save on costs when selling property in Hungary. This, coupled with the reduced stamp duty and less capital gains tax, should make it easier to resell on the Hungarian market. All we need is financing for the buyers, unfortunately this is exactly what has been obstructed by the government. Government-subsidized loans have been stopped in July, 2009.
In Slovakia the situation is quite the opposite. The government is encouraging young couples to buy apartments by introducing government-subsidized loans where people pay as little as 2% interest on long-term loans on condition they do not resell within 4 years. However, these options are only available for local residents.
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 Ivory Tower
Unique corner apartment for sale on the top floor of a magnificent turn-of-the-century building in central Budapest
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Built in 1913
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Beautiful view, Budapest District 7
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79 m2
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6th floor with lift
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Area currently being turned into a pedestrian zone
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Parking garages available nearby
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Business district
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Rental potential: €550-600 depending on furnishing quality
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Needs renovation - plans in place to turn it into an exclusive loft apartment with 2 rooms
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Price: €82,500 (65% LTV financing available)
Andras Patkai
info@ceinvest.hu
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