Setting caps on mortgages
Bank of Greece intends to introduce limits on loans issued in order to prevent excesses
The Bank of Greece, in cooperation with lenders, is establishing limits on mortgage amounts in relation to the commercial value of the property and the monthly installment to be paid by the new borrowers.
The limits will be more flexible for those who are new buyers – i.e. those who take out a mortgage for the first time to buy a property – with the aim of making it easier for them to acquire a property through credit.
According to banking sources, the new limits for the housing market concern the amount of the loan that one can get and which will not be able to exceed 80% of the commercial value of the property or 90% if they are a new buyer; and the installments of the loan cannot exceed 40% of the disposable income or 50% if it concerns a new buyer.
According to sources from banks, the proposed measures are to allow 10% of the total number of loans to be approved each year to exceed the above limits, provided that this is justified by the profile and financial situation of the prospective borrower.
The establishment of limits on bank lending for the housing market is a measure applied by the majority of European countries and is expected to be instituted for the first time in this country as well.
The limit on the amount of the loan in relation to the value of the property will serve as a buffer against any reduction in the commercial prices of the properties that would put these loans at risk, while the limit in relation to the cost of the average household to cover housing needs will prevent overborrowing.
The new limits will be “imposed” by a relevant decision of the Bank of Greece to be issued in mid-March and will be implemented from the start of 2025, in order to allow the necessary adjustment by the banks.
The measure will not overturn the credit policy of banks, which already apply similar rules to new loans they grant. According to disbursement data in 2023, 94% of loans provided were for less than 80% of the property’s value.
