Bank of Greece sets limits on mortgages
Decision by Yannis Stournaras puts a lid on the issue of housing loans to prevent overlending
The Bank of Greece is establishing a ceiling on the issue of new mortgages to prevent excessive lending.
Governor Yannis Stournaras has decided to set a maximum loan limit in relation to the value of the property and a maximum limit for servicing the debts from housing loans in relation to the total income of the borrower.
The limits will be more flexible for those who are new buyers in an effort to make it easier for young people to access bank lending to acquire property.
The new limits will apply from January 1, 2025 and provide that:
• The loan cannot exceed 80% of the commercial value of the property. Exempted are those who take out a mortgage for the first time, for whom the amount of the loan cannot exceed 90% of the value of the property.
• The cost of servicing a borrower’s loan obligations cannot exceed 40% of their annual income. The exception is again young buyers, for whom the limit rises to 50%.
• Banks will be able to exceed the above two limits for 10% of the number of new disbursements and the excess will be tracked separately for first-time buyers and other borrowers.
A new buyer is considered to be the one who resorts to bank borrowing for the first time to buy a house, regardless of whether they already own a property – e.g. after parental concession. The limit for the calculation of the debt service ratio (debt service to income) will concern all the debts one has in the bank. In particular, if the installment of a mortgage absorbs 30% of the income, the bank should also take into account any other debts – e.g. from consumer loans or cards – adding these costs when calculating the index.
Also considered as income for the calculation of the debt service ratio is the net income – i.e. that which results after the deduction of tax and social security obligations.
The establishment of limits regarding housing loans is a measure applied by the majority of European countries, where limits are actually much stricter than those to be introduced in Greece.
