PRAGUE, June 12 (Reuters) - The Czech central bank introduced new brakes on the mortgage market on Tuesday in its drive to avoid a price-lending spiral it fears may destabilise the financial system in case of a crisis.
The bank for the first time recommended banks to limit mortgages not only relative to the value of collateral but also to the income of borrowers, a step that may limit access to credit to some Czechs.
As of October this year, a mortgage applicant’s debt including the housing loan cannot exceed nine times his or her annual income. At the same time, debt payments cannot exceed 45 percent of their net income.
“We are... interested mainly in what will happen to loan servicing when the good times end,” central bank Governor Jiri Rusnok said in a statement.
“Although this may not come soon, it will happen one day. As soon as interest rates or unemployment start to rise, a large subset of households could run into loan service problems, which in turn would negatively affect the condition of banks.”
Separately, the bank also raised its counter-cyclical capital buffer applied to all banks by 25 basis points to 1.5 percent as of July 2019.
The new mortgage restrictions come on top of a loan-to-value cap of 80 percent for 85 percent of banks’ mortgage book, which was introduced last year. No mortgages can exceed 90 percent of a property’s value. (Reporting by Jan Lopatka and Jason Hovet)