No Relief for Homebuyers in Austria as Banks Continue with Strict Lending Rules
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Loading... - Albert Stewart
- 03 Mar 2025
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Austria's mortgage restrictions are set to remain in place beyond June 2025, despite the anticipated expiration of the controversial KIM Regulation. Initially, it was expected that the end of this regulation would ease the stringent home loan rules, but recent reports indicate that this will not be the case.
Continued Strict Lending Guidelines
While the KIM Regulation (Credit Institutions Real Estate Financing Measures Ordinance) will officially expire in June 2025, the Financial Market Stability Board (FMSG) has advised banks to maintain the same lending guidelines to ensure financial stability. This means that homebuyers hoping for easier access to mortgages will continue to face significant borrowing restrictions.
Overview of the KIM Regulation
Introduced in August 2022, the KIM Regulation aimed to prevent risky lending practices in Austria's real estate market. Key provisions included:
- Minimum Equity Requirement: Buyers must have at least 20% equity.
- Loan Term Limits: Mortgage terms are capped at 35 years.
- Repayment Caps: Monthly repayments cannot exceed 40% of net disposable income.
While these measures reduced financial risk, they also made it considerably more challenging for many, particularly young families and middle-income earners, to secure home loans. As a result, property transactions have slowed significantly, with only 16,000 apartments sold in the first half of 2024 compared to 26,000 in the same period in 2022.
Future of Lending Standards
Even after the KIM Regulation expires, the FMSG has recommended that banks continue to apply the same lending standards. The board emphasized that "sustainable lending is essential for the stability of the financial market," and the previous requirements should remain in effect. Key rules expected to continue include:
- A loan-to-value ratio not exceeding 90%.
- A debt-service-to-income ratio capped at 40%.
- A maximum loan term of 35 years.
Additionally, loans that do not meet these criteria should not account for more than 20% of new loans per quarter.
Regulatory Concerns
Regulators remain cautious about financial risks, even with improvements in the housing market. Housing loans in Austria have increased sixfold over the past 25 years, totaling €130 billion, which has significantly altered banks' balance sheets and risk profiles. The Financial Market Authority (FMA) has warned that without lending restrictions, Austria could face systemic risks similar to those seen in past financial crises. Helmut Ettl, co-head of the FMA, reiterated that "those who can't afford it should still not get a loan," highlighting concerns about a return to risky lending practices.
Impact on Homebuyers
This announcement is disappointing for prospective buyers who were hoping for a relaxation of mortgage restrictions in 2025. Although property prices in Austria have stabilized, obtaining a mortgage will remain challenging under the current rules. The real estate market has already slowed, and with banks adhering to strict lending criteria, significant changes are unlikely in the near future.
Some industry experts suggest that individual banks may eventually offer more flexible loan options, as they will have some leeway to adjust their lending policies within regulatory limits. However, any major changes are not expected soon.
Next Steps
The FMA will initiate discussions with banks to ensure compliance with the lending guidelines. Regulators will continue to monitor the impact on Austria's housing market and assess whether further interventions are necessary. For now, homebuyers should not anticipate any major changes to mortgage conditions, even after the KIM Regulation expires in June 2025. Those seeking an easier path to homeownership may need to explore alternative financing options or wait longer for potential improvements in lending practices.
