Banks Want Review of Austria Loan Curb Hitting First-Home Buyers

(Bloomberg) -- Four months after the rules entered into force, Austrian banks are asking regulators to reconsider mortgage limits intended to tame an overheated property market.

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They claim the measures raise excessive obstacles for buyers, including those looking to finance their first home purchase, and have contributed to a 40% drop in newly issued household mortgages.

Policy makers across Europe are trying to navigate a real-estate market that’s becoming unaffordable for many due to rising interest rates and inflation on the heels of years of price appreciation. The statement by the Austrian Economic Chambers’s banking division comes after a similar proposal in October by Finance Minister Magnus Brunner.

Austria’s rules set binding constraints on the size of mortgages relative to property value, monthly installments and term length. Banks are allowed a quota for loans that don’t fulfill some criteria.

“The regulation, in its current form, only amplifies the crisis,” Willi Cernko, head of the banking division and chief executive officer of Erste Group Bank AG, said in the statement. “We all have an interest in stable financial markets, but also to allow people to buy a home.”

Financial-stability rules in Austria are set by a committee of delegates from the national bank, the finance ministry, the financial regulator, and the fiscal council. Home prices have doubled in Austria over the past decade, notching up double-digit annual growth rates in the eight last quarters.

A review would be timely after the latest lending data can be evaluated in the first quarter of 2023, Austrian National Bank Vice Governor Gottfried Haber said on Nov. 22. Rising interest rates and inflation were mostly responsible for cooling the housing market, with a smaller impact coming from the mortgage rules, he said at the time.

The banking lobby’s proposals include easing limits for younger first-home buyers who may have more means to repay loans. They’d also address cases where families buy a new home before selling their previous property, which eats into banks’ exception quota.

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