Austria is following through on a pledge to make mortgage standards compulsory, starting on Aug. 1, in response to a continued boom in its housing market, the Financial Market Authority said.
At the behest of the European Union's financial stability watchdog, Austria said in February it would switch from widely flouted recommendations to binding standards, with lenders allowed to deviate from them in up to 20% of cases.
The new standards include capping loan-to-value ratios at 90%, limiting maturities to 35 years and imposing a maximum debt service ratio of 40%.
"The aim of this decree is to limit the systemic risks in residential property financing in light of the property price boom, turnaround in interest rates, fragile economic environment and current lending practices," the FMA said in a statement on a decree it has issued, which will come into force on Aug. 1.
As a result of consultations before the decree was issued, its start date was pushed back by a month and the minimum size of loan covered was raised to 50,000 euros ($52,695) from 40,000, it said. The standards were announced months ago by the Financial Market Stability Board, which brings together officials from the FMA, Austrian National Bank (ONB) and Finance Ministry. The ONB called last week for the standards to be made compulsory as soon as possible, suggesting tensions over the start date.
Austrian residential property prices have continued to rise sharply, the ONB said in a report last week that put the year-on-year increase at 12.3% in the first quarter of this year, after 12.6% in the fourth quarter of 2021. The central bank said residential property prices were 35% overvalued relative to fundamentals in the first quarter. In Vienna, it put the figure at 40%.
