Austria: Stricter Regulations for Residential Loans Since August 2022

The Austrian Financial Market Authority (FMA) has, in order to limit systemic risks in debt financing of residential real estate, issued the "Credit Institutions Real Estate Financing Measures Regulation (KIM-VO)" [1], which has entered into force upon publication in the Federal Law Gazette.

With this regulation, the FMA implements the recommendations and requirements of the Financial Market Stability Board (FMSG).

The regulation is legally binding and applies to newly agreed private residential real estate financing from 1 August 2022.

"The aim of this regulation is to limit the increasing systemic risks in residential real estate financing in light of the real estate price boom, the interest rate turnaround, the fragile economic environment and the current lending practices," said the FMA Executive Board members Helmut Ettl and Eduard Müller: "When granting loans, the borrower's repayment capacity, and not the mortgage collateral of the loan, must be the primary consideration."

Key points of the new lending standard:

In accordance with the recommendations of the FMSG and based on an expert opinion by the Oesterreichische Nationalbank (OeNB), the FMA therefore issued the following upper limits for the granting of residential real estate financing:

• A maximum loan-to-value ratio of 90%, with credit institutions being granted an exemption quota of 20%.
• A debt service ratio of a maximum of 40% (exemption quota: 10%).
• A maximum term of 35 years (exceptional contingent 5%).
• In total, however, a maximum of 20% of all loans at a credit institution may exceed one of the upper limits.
• To facilitate renovations and refurbishments – in particular the switch from fossil fuels to renewable energy sources – financings up to a de minimis threshold of € 50,000 are exempt from these requirements.

Even though existing loans are exempt from this (loan extensions, however, fall under the new regulations), good advice is hard to come by.

It is already noticeable that the resulting 'credit brake' has made it significantly more difficult to take out new loans for residential purposes (purchasing an apartment, building a home).

Residential financing made more difficult for private individuals – lifelong tenants guaranteed for investors?

By the fact that commercial residential construction financing is not affected by the FMA regulation – meaning investors can continue to finance the construction of apartments on credit in order to rent them out to those who can no longer secure financing – potential future owners are being turned into lifelong tenants, and the idea of a nation of property owners (which would enable people to cope with economic crises significantly better) is being undermined.

The good idea of protecting families from credit adventures and securing banks has been thrown out with the bathwater.

The banks have also, up until now, paid close attention to the creditworthiness of their customers due to very strict regulations and their own economic reasoning, and the mortgage loan is distinguished precisely by the greatest possible security – the property with which it is collateralised.

Real estate agents are permitted pursuant to § 117 Para. 2 Z 5 GewO to broker mortgage loans.

Due to their market knowledge and thorough professional training, real estate agents are your first point of contact when it comes to the question of how you can still finance your residential property.

Real estate agents will help you

• create your personal household budget,
• calculate your financing options, and
• are happy to obtain loan offers on your behalf.

So if you are now looking to take out a new loan for the purchase of an apartment or the construction of your own home, you must meet the following requirements:

Equity ratio of 10 percent

In the future, borrowers must be able to provide proof of at least 10 percent of the purchase price (including ancillary costs) in the form of equity capital.

Maximum loan repayment rate of 40 percent of net income

The loan repayment rate may not exceed 40 percent of the monthly household net income.

Maximum loan term of 35 years

The term of the loan may no longer exceed 35 years.

Your contact person and expert:

Dipl.Oec. Zoran Kalabic, MBA [email protected] www.4m-immo.at