Excitement persists in private buyer lending market
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Title: Banks face tough lending rules as FMA sticks to strict mortgage guidelines
Seldom has a financial regulation stirred as much turbulence as the one governing real estate loans, famously known as KIM-V. Introduced in August 2022, it aimed to reduce risks in the private real estate sector. The good news: The regulation achieved its goal with a default rate of 1.3 percent, and it's running smoothly until the end of June. The bad news: The Financial Market Authority (FMA) is sticking to these guidelines even after the regulation's expiration.
It's a circulablenightmare: KIM regulation before it's rephased
The FMA has been categorical about its stance on sustainable lending and has clarified it in a recent circular to banks. The circular emphasized that the existing guidelines are indispensable for the stability of the financial market, and the FMA continues to back these guidelines. This was also reiterated by FMA board member Helmut Ettl to ORF this week. "We'll keep an eye on those banks that significantly deviate from the award criteria."
The financial industry and politicians are furious. "The FMA's stance is baffling. If the overly stringent rules of the KIM regulation are finally abolished, there should not be any new ones cropping up through the back door," states Michael Höllerer, chairman of the association and the general director of Raiffeisen Landesbank Niederösterreich-Wien. "Banks already assess every financing in their own interest. Extraordinary obstacles are not necessary." The sector craves relief from regulations and actual bureaucratic easing instead of lip service.
Heavy Lifting
Christoph Neumayer, general secretary of the Industrial Association, agrees with the sentiment. "Banks that deviate from the guidelines must justify themselves, and they can expect a thorough review and assessment, involving significant organizational, personnel, and financial effort." This regulation seems excessive, particularly given that there's no longer any systemic risk and default rates on residential real estate loans remain low.
The real estate market is being unnecessarily slowed down by these additional restrictions, and the construction industry's strengthening is made significantly more challenging. And the chairman of the Landeshauptleute conference, Salzburg's governor Wilfried Haslauer (ÖVP), called on the FMA in a letter to the Krone to withdraw from this circular. ÖVP’s financial spokesman, Andreas Ottenschläger, underscores: "Banks have always evaluated credit awards based on credit criteria, and this has already worked before the KIM regulation, and it will continue to do so afterward."
More loans, but at what cost?
The FMA dismissed the accusations on Friday. "From January to April, over 5.2 billion euros in loans were granted for the purchase of owner-occupied homes, which represents a two-thirds increase compared to last year," the FMA stated. "The KIM-V hasn't hindered this increase in recent months." The FMA attributes the amplified loan activity to reduced interest rates. While the low default rates at banks are a success of the KIM-V, it's important to consider the effort they’ve exerted in meeting these guidelines.
Most non-performing loans are clustered in commercial real estateInterestingly, the decision on this circular was not made by the FMA alone; it was a collaborative decision within the Financial Market Stability Committee, comprising representatives from the Fiscal Council, the Ministry of Finance, the National Bank, among others.
The financial industry believes that the Financial Market Authority (FMA) is unnecessarily slowing down the real estate market with additional lending restrictions, as stated by Michael Höllerer, chairman of the association and the general director of Raiffeisen Landesbank Niederösterreich-Wien. The sector craves bureaucratic easing instead of strict lending guidelines, as these regulations require significant organizational, personnel, and financial effort for banks, as pointed out by Christoph Neumayer, general secretary of the Industrial Association.
