In the latest edition of its consumer information series “Let’s talk about money”, the FMA explains about the purpose for borrowers of the new legally binding standards for the sustainable granting of real estate lending, and which these standards actually mean for them. “When granting a loan, the priority must be the ability to repay that loan, rather than the mortgage-based collateralisation of the loan,” remarked the FMA’s Executive Board. “We want borrowers to be able to service and repay their residential property loans in an orderly manner, even in the event of their financial situation deteriorating, otherwise there is the very real threat of losing the roof over their heads in addition to financial difficulties”, added Helmut Ettl and Eduard Müller. In recent years, the low interest environment that prevailed for many years, the dramatically increasing property prices, and cut-throat competition between the banks has meant that borrowers’ financial capacity has increasingly been stretched to the limit when it comes to financing private housing. In light of the upturn in interest rates that has recently begun, significantly increases in the cost of living, a very fragile economic environment, and an impending crash in housing prices, cautious and sustainable lending is the order of the day, the FMA’s Executive Board noted.
Principles for the Sustainable Granting of Credit for Real Estate
The FMA therefore, as instructed by the Austrian Financial Market Stability Board (FMSB), has also made the hitherto internationally accepted principles for the appropriate and sustainable granting of credit for real estate, which already existed as recommendations, legally binding in Austria by issuing a Regulation:
- The maximum permitted debt service-to-income ratio (DSTI) is 40%. This means that the annual repayments of all loans held by a customer are not allowed to exceed more than 40% of their available annual net income. This should ensure that even in the case of unforeseen financial difficulties that they still have sufficient financial room for manoeuvre in order to still be able to service the loan.
- The maximum permitted loan-to-value ratio (LTV) shall be 90% of the value of the property (or other collateral). This means that the borrower as a rule needs at least a 20% capital down payment, as around an extra 10% in ancillary fees can be expected on top of the price/value of the property.
- The maximum permitted term of the loan is 35 years. Firstly, this is to ensure that the loan has to a large extent already been repaid by retirement age, and the decline in income that accompanies it. Additionally, to avoid artificially bringing the loan repayment ratio to below the debt service-to-income ratio by unrealistically extending its maturity.
- In order to simplify renovations and redevelopments – in particular the transitioning from fossil energy sources towards renewable energy – financing under a € 50,000 threshold is excluded from these rules.
If these principals are observed, it can be reasonably assumed that the borrower will be able to sustainably fulfil their dream of home ownership. Where the borrower is unable to observe these principles, it makes greater sense to change desired requirements to match their financial situation: for example, by opting for a smaller apartment, not quite such an expensive location, or more moderate fixtures and fittings. Or alternative, they can tap additional sources of funding or include more collateral.
A legal Regulation is unable to exhaustively cover every possible scenario and individual circumstance that a potential borrower might have. The FMA therefore allows each bank specifically limited quotas for exceptions when granting loans, in order to allow them to nevertheless be able to grant a housing loan to a customer who does not meet a particular criterion, provided that their ability to service the loan can be proven otherwise.
The “Housing loans – what’s new?” of the FMA’s “Let’s talk about money” consumer information series can be found at:
Journalists may address further enquiries to:
Klaus Grubelnik (FMA Media Spokesperson):
+43/(0)676 882 49 516
 The FMA’s “Regulation on measures for the limitation of systemic risk in real estate financing at credit institutions” (KIM-V; Kreditinstitute-Immobilienfinanzierungsmaßnahmen-Verordnung” entered into force on 01 August 2022.