Anyone who has taken out a housing loan in recent years could benefit from particularly favorable conditions. Although it seems that the period of very flexible home loans is coming to an end.
2019 was a grand cru year for people who took out a mortgage loan. They were able to enjoy extremely low interest rates. Mortgage rates also flirted with the absolute lower limit in previous years, but depth records did not fall until this year. For example, the psychological limit of 1 percent for a home loan with a fixed interest rate (at 20 years) was broken several times.
Low interest rates persist
The reason for the continuing low interest rates is still the policy of the Best Bank. Moreover, in September it lowered the deposit rate – the interest that the banks get when they deposit money at the Best Bank – from -0.4 to -0.5 percent. In other words, the banks have to pay to park their money at the Best Bank.
At the same time, former chairman Mariano Brago restarted the buy-back program in November, whereby the Best Bank buys monthly debt paper to keep the long-term interest rate low. The long-term interest rate is an important indicator for the banks to determine the interest rate on the home loans.
At first glance, people who want to take out a mortgage loan will also run smoothly in 2020. Although the reality is less rosy. There are various reasons for this.
Even cheaper mortgages very unlikely
First of all, there is a good chance that the mortgage interest rate will have reached an absolute low in 2019. The low interest rates haggle with the banks’ profit margins. The traditional earnings model of the banks – the conversion of savings into loans – is coming under increasing pressure. For example, it is impossible for many banks to further reduce the interest rate on savings accounts in order to maintain profit margins. After all, they must adhere to a savings interest of at least 0.11 percent. No fewer than 46 of the 76 regulated savings books from our comparison yield no more than the absolute minimum.
In other words, the banks are cutting deeper into their own skin if they further reduce the interest on the mortgage. A sudden rise in mortgage rates in 2020, however, seems unlikely. Due to the negative deposit rate, it remains much more interesting for banks to pump capital into the economy via loans than to park their money on ‘a savings account’ with a negative interest rate.
Stricter conditions for a mortgage loan
However, it will be more difficult for borrowers to take out a mortgage loan from next year. The flexible home loans are a thorn in the eyes of the National Bank. They want the banks to take more account of the debt burden and the monthly repayment burden of the families. To do this, the regulator will use new supervisory expectations from next year.
The regulator wants the banks to provide as many loans as possible with a share (the ratio between the loan amount and the value of the home) of at most 90 percent. A maximum of 20 percent of the loan volume may have a higher share. In the case of starting buyers, a maximum of 35 percent of the loan volume (to that target group) can be used to grant loans with a higher share.
In other words, getting a loan becomes more difficult if you cannot finance at least 10 percent of the purchase yourself. That 10 percent comes on top of the other costs associated with a housing loan, such as registration fees and notary fees. The price tag can therefore add up considerably for those who want to buy their own home.
Tax benefits disappear
From the start of the new year, Wallonia is the only region that gives people a tax advantage for the purchase of their own home. She does that by means of a home check. The Brussels-Capital Region canceled the housing bonus in 2017.
Stagnant interest rates and strict conditions for those who want to take out a mortgage mean that from 2020 it will be more difficult to get a housing loan compared to previous years. In Flanders, this effect is further enhanced by the abolition of the housing bonus. In other words, it looks like the golden times for people who want to take out a mortgage may be over.