UPDATE 2-Hungarian central bank to tighten mortgage conditions to avert repayment risks

* Bank tightens payment-to-income limits

* Aims to nudge borrowers into fixed-rate loans

* Bank holds monthly policy meeting on Tuesday

* Reform to prevent future risks, not limit credit growth -analyst (Adds detail, analyst comment)

By Gergely Szakacs

BUDAPEST, June 18 (Reuters) - Hungary’s central bank will tighten mortgage conditions by curbing monthly payment-to-income limits from October, it said on Monday, expanding efforts to drive borrowers into fixed-rate loans to limit repayment risks.

The National Bank of Hungary, one of the most dovish central banks in Europe, follows its Czech counterpart, which last week announced it would cap mortgage loans at nine times borrowers’ salaries to tackle a rapid build-up of debt.

After years in the doldrums, Hungarians are taking out new mortgages at a pace not seen since the 2008 financial crisis. The bonanza is driven by record-low interest rates and a real estate boom, which has triggered a surge in property prices.

However, the mortgage boom comes at a time when global interest rates have started rising.

The central bank said the modified mortgage rules would ensure that the lending expansion has a healthy structure.

“As a result of the changes in debt brake regulations, the quality of retail lending will improve even further, its structure will become healthier and more sustainable,” the central bank said in a statement.

“No major negative impact on lending volumes is expected due to the changes, because borrowers are predominantly not strained from the income side,” it said. Hungarian gross wages have been rising by double-digit rates in the past year.

The bank will hold a rate-setting meeting on Tuesday, where it is expected to keep interest rates on hold at record lows, but may shift to less dovish language in the wake of a sharp weakening in the forint and Hungarian bonds.

Eszter Gargyan, an analyst at Citigroup, said the reforms were not aimed at slowing down credit growth but were designed to prevent the build-up of risks for the future, when the normalisation of European interest rates begins.

“The central bank has realised, especially given that the yield curve has become steeper, that there is a high risk of a variable-rate mortgage stock building up during the current lending boom,” she said.

“I do not think they would aim to tighten mortgage lending overall, because the bank is focused on supporting lending.”

The central bank said that as of Oct. 1, the monthly repayments cannot exceed 25 percent of the monthly net income of borrowers if the interest rate of their mortgages is fixed for a period shorter than five years.

Conditions have also been tightened for loans on which interest rates are fixed for 5 to 10 years.

The current payment-to-income limits, where monthly repayments can reach up to 60 percent of net income, will be offered only to borrowers who obtain mortgages with fixed rates for at least 10 years, of the entire lifetime of the loan. (Reporting by Gergely Szakacs and Krisztina Than; Editing by Toby Chopra)