In the words of Márton, in the long run, negative real interest rates are an opportunity for our country’s economy that has not been seen since the establishment of the MNB!

It is worth taking advantage of the negative interest rate environment by borrowing for a home purchase or investment, but it is also a great opportunity to fix the interest rates on your existing loans! The MNB intends to encourage this.

Favorable opinion on the negative real interest rate

You called the state of grace the interest environment that has now developed in Hungary, and he draws your attention to its benefits!

The fall in the domestic real interest rate can be explained by the development of the neutral real interest rate = external real interest rate – expected real appreciation + risk premium.

  1. the external real interest rate has been going down for 30 years and is internationally negative,
  2. the expected real appreciation is at least 1%,
  3. and the risk premium (CDS premium) fell below 1%.
  • So, “we can import the external negative real interest rate or even go below it.”
  • There has been no such low real interest rate since hyperinflation.
  • Longer-term yields are so low that they even surpass pre-crisis depths. Domestic real interest rates continued to decline in the segment examined by the MNB.
  • According to our 20-year survey, real interest rates are still the lowest in Hungary.
  • This has a positive impact on public finances and the economy. Government finances have achieved significant savings in interest expenditure. Expenditure has fallen from 5% in 2013 to 3% of GDP. Such a fall in real interest rates will also have a significant positive effect on public debt.
  • Looking at the issuance of government securities, we can see that the longer the maturity and the lower the fixed interest rates are used. The prospects for the future are also brilliant.
  • The share of Hungary’s debt in foreign currency (now 24%), which needs to be further reduced, this is very important.
  • In Hungary, interest income is lower than interest expenditure, and the increase in salaries did not raise the consumer rate!
  • The rate of investment in households is rising, and now the conditions for obtaining housing and taking out loans are very favorable.
  • At the same time, the MNB is also monitoring the increase in cash holdings, since in a negative (real) interest rate environment, this does not entail any significant costs for economic participants.
  • Companies are in favor of negative real interest rates, they do not have to insist on an increase in financial assets, but the situation is now ripe for borrowing and they are planning to invest in fixed rate investments for the long term.
  • Banks are losing 20-28 billion euros a year in falling base rates, which is difficult to make up. They could offset their less efficient operation by reducing non-interest income and reducing their costs.
  • Covering banks’ interest rate risk, they now pay a lot of fixed long-term loan interest rates to companies and households.

For new contracts

  • The share of floating rate loans was 95%
  • and 57% for households and 64% for households).

Why do banks not want to give long-term loans at 20-30 years? Only 3 major banks can get a 20-year fixed loan, which is a novelty among banks.

Qualified consumer friendly home loans

  1. fixed rate,
  2. Qualified rules also prioritize fixed rate loans
  3. there is a mortgage compliance ratio,

However, it can be seen that this is not enough. The central bank urges that loans be converted to fixed interest rates, which can be achieved through competition with banks in the face of price competition.

Negative real interest rates are forecast to remain in the next 7-8 years, which the MNB says should be used. This is a historic opportunity!

If you would like to take part in this opportunity, or just want to know about consumer friendly home loans, if you would like to get professional information from our uncertain and expert credit broker, fill out our form and we will call you back!