The Austrian Financial Market Authority (FMA) has published a circular about the sound granting of private residential real estate loans (WIK-RS) today that sets out the framework for the granting of credit following the KIM-V’s expiry on 30 June 2025. In so doing, the FMA implements an instruction by the Financial Market Stability Board (FMSG; Finanzmarktstabilitätsgremium).
In line with the FMSG’s recommendation, there are three simple fundamental rules for the granting of credit at the core of the circular that were established in the KIM-V: 1. Provide equity (specifically: a maximum 90% loan-to-collateral ratio), 2. remain cautious regarding the level of loan repayments instalments (maximum 40% of annual income after tax) and 3. where possible be debt-free before retirement (maximum term of 35 years). Such rules are standard for housing loans in many EU countries and around the world, and the specific dimensioning is comparatively moderate.
“Residential property loans are the only area in Austria where there been substantial growth in lending this year,” remarked the FMA’s Executive Board, Helmut Ettl and Eduard Müller. “They increased by two thirds to €5.2 billion between January and April, primarily due to the currently falling interest rates. It is clear that sound lending standards applying common sense do not hamper healthy credit growth.”
What has changed with the expiry of the KIM-V is that banks are now able to deviate from the three rules as long as sound loan origination is still guaranteed. The circular also defines the conditions for deviating away from these rules. The FMA will continue to consider the rules as a benchmark for sound lending practices. If banks choose to deviate away from these rules, they must be able to show that their risk strategy covers this increased risk appetite, which in turn may mean higher capital requirements.
The main issue that rendered the KIM-V necessary in the first place was the massive drifting apart of real estate prices and income levels in Austria since 2010. While this undesirable development, which was unusual in Europe, has receded in the last couple of years, real estate remains significantly overvalued. “The potential continues to exist of systemic risks developing, such as in the case of strong price development being countered by excessive granting of credit,” added the FMA’s Executive Board. “A reduction in Austrian banks’ recently very sound capital ratios could also lead to the FMSG having to consider a measure like the KIM-V again.”
The Circular can be found on the FMA website at: https://www.fma.gv.at/en/fma/fma-circulars/
Journalists may address further enquiries to:
Boris Gröndahl (FMA Media Spokesperson)
Telephone: +43 (1) 249 59-6010
Mobile: +43 676 8824 9995
E-Mail: [email protected]