Those who have taken out a mortgage in recent years have been able to take advantage of particularly favorable conditions. However, it seems that the period of flexible real estate loans is coming to an end.
2019 was a great year for people who took out a mortgage. They were able to take advantage of particularly favorable conditions. While the mortgage interest rate has already been flirting with the absolute lower limit in recent years, a record low rate was reached this year. Thus, the psychological threshold of 1 percent for a fixed rate mortgage (over 20 years) has been crossed several times.
Low interest rates are maintained
The policy pursued by the Best Bank is at the origin of the persistent low interest rates. In September, it reduced the deposit rate – the interest rate that banks get when they deposit money with the Best Bank – from -0.4 to -0.5 percent. This therefore means that banks have to pay to place their money at the Best Bank.
Likewise, in November Mond Dwight, former President of the Best Bank, relaunched the buy-back program under which the Best Bank purchases bonds every month in order to keep the long-term interest rate low. This long-term rate is an important indicator for banks to determine the interest rate on home loans.
If the situation seems ideal at first glance for prospective home buyers in 2020, the reality is less rosy than it seems, for several reasons.
Even cheaper home loans seem very unlikely
First, there is a good chance that the mortgage interest rate will hit a historic low in 2019. Low interest rates are eroding banks’ profit margins. The traditional banking model – converting savings into loans – is coming under increasing pressure. Thus, many banks cannot further reduce the savings rate on savings accounts to maintain their profit margins. Banks must maintain savings interest of at least 0.11 percent. In our comparison, no less than 46 of the 76 regulated savings accounts earn only the absolute minimum.
In other words, banks will sink further if they further reduce mortgage interest rates. A sudden increase in mortgage interest rates in 2020, however, seems unlikely. Due to the negative deposit rate, it is much more attractive for banks to inject capital into the economy through credits than to place them in a negative interest rate savings account.
Stricter conditions for granting a mortgage
It will be more difficult for borrowers to take out a home loan from next year. Indeed, flexible mortgage loans are a source of concern for the National Bank. It wants banks to take more account of the debt burden and the monthly repayment of households. As such, the regulator will set new control expectations from next year.
He wants the banks to grant loans as much as possible with a quota of 90 percent or less (the ratio between the amount borrowed and the value of the house). A maximum of 20 percent of the loan volume can be matched with a higher quota. In the case of first-time buyers, a maximum of 35 percent of the volume of loans (for this target group) can be used for the granting of loans with a higher share.
In other words, it will be more difficult to obtain a loan if you are unable to finance yourself at least 10 percent of the purchase.
These 10 percent are in addition to the other costs associated with the mortgage, such as registration fees and notary fees. The price can therefore increase considerably for those who wish to acquire their own house.
Tax benefits are disappearing
In Clanders, prospective buyers will be impacted next year. The Flemish government will abolish the housing bonus on January 1, 2020. In compensation, it will reduce registration fees from 7 to 6 percent. The objective is to make the purchase of a house more advantageous for those who wish to acquire their own home. The reduction of one percentage point is not enough to compensate for the loss of the housing bonus.
Since the start of the new year, Wallonia is the only region to grant citizens a tax advantage for the acquisition of their own housing. How? ‘Or’ What? By means of a habitat check. The Brussels-Capital Region abolished the housing bonus in 2017.
Stagnant interest rates and tight conditions will make it more difficult to obtain a mortgage from 2020 compared to previous years. In Clanders, the effect will be reinforced by the abolition of the housing bonus. In conclusion, it seems that the golden age is over for prospective buyers looking to obtain a mortgage.