Hungary mortgage market takes off after years in doldrums

BUDAPEST, April 14 (Reuters) - When it comes to debt, Tamas Balogh likes to play it safe. Only the option to lock in monthly payments on his mortgage for 10 years gave him the confidence to buy a used flat in Budapest’s booming property market.

That caution is understandable. After taking out foreign currency loans that looked cheap, tens of thousands of Hungarians were pushed into default in the wake of the global financial crisis.

But this year, they are on course to take out more mortgages than any year since 2008 - if the developers can only keep up.

That will be a boon for local banks, which saw their lending volumes plunge after the crisis. Now they are forecasting a double-digit expansion in mortgage lending for 2017, helped by rising economic growth and a recovery in the property market.

K&H, the local unit of Belgian KBC, and Budapest Bank estimate the mortgage market will come to about 600 billion forints ($2.0 billion) this year, and the latter said new homes sold late in 2017 could lift that figure even higher.

The local unit of Austria’s Raiffeisen and state-owned Budapest Bank aim to rack up twice last year’s mortgage issuance.

Record low interest rates, rising real wages, a government housing programme for families, tax cuts and years of pent-up demand for new homes have sent prices soaring.

The stimulus measures appear to be aimed at helping Prime Minister Viktor Orban retain power next April. Budapest forecasts economic growth of more than 4 percent this year and next, which would be the fastest since Orban took power in 2010.

The central bank says the prices of used homes rose by 29.1 percent from a late-2013 trough to the start of 2016, while new homes were 12.9 percent more expensive on average, with prices in Budapest surging more than 50 percent within two years.

“I had to make a compromise, because I did not manage to buy a flat where I originally planned,” said Balogh, 28, an account specialist at IBM who moonlights as a master of ceremonies at weddings.

“If you stay within your means, there is no problem with borrowing,” said Balogh, who got his mortgage from the local unit of Italian UniCredit to finance about a third of the cost of his apartment. That, he said, was a risk he could stomach.

Hungarians can no longer borrow in foreign currencies after volatility in the Swiss franc pushed tens of thousands into default. Tighter rules on payment-to-income levels could also help prevent a repeat of the borrowing binge before the crisis.

In fact, borrowing in forints is now cheaper than it used to be in foreign currencies before the crisis, bolstering demand, said David Nemeth, an analyst at K&H.

Household debt levels also lag central European averages, according to central bank figures, suggesting banks have ample room to expand their loan books after years of deleveraging.


Even on a windswept plain between two highways west of Budapest, where a half-finished concrete monolith lay dormant for years, workers are busy fitting windows and insulating walls as the once-doomed Topark project is resurrected.

A new owner is betting that the upswing will transform the area, a symbolic scar of the property market crash after the financial crisis, into a new residential hub with 350 new homes and 55,000 square metres of office space in the coming years.

A dozen or so cranes loom along a main road into Budapest. The country registered 31,559 home building permits in 2016, more than 2.5 times the previous year’s figure.

Metrodom, a major developer, says it usually sells about a quarter of flats in a new housing project within an hour of posting them online. At a new construction site it has only about 18 homes to sell of a total 182 planned for that project.

“The number of new homes finished could increase substantially this year, but the big leap could come in 2018 and 2019,” said Tamas Kricsfalussy, sales and marketing director at Metrodom.

The central bank says that despite the runup of recent years, home prices are still short of levels that would be justified by economic fundamentals, while overall mortgage borrowing remains below pre-crisis levels.

The only real bottleneck to the booming housing market is a shortage of capacity and workers, some developers say.

“The construction sector shrank significantly after the crisis or turned towards public sector orders, so now almost everyone is struggling with capacity shortages,” Metrodom’s Kricsfalussy said.

“Many of the announced projects may never be built. I would say that in case of 25 to 30 percent of new homes now offered in the market, not a single shovel of dirt has been moved yet.” ($1 = 293.41 forints) (Editing by Hugh Lawson)