January 24, 2020 / 11:52 AM / 24 days ago

Czech central bank closer to new powers to regulate mortgage lending

PRAGUE (Reuters) - The Czech central bank won preliminary approval from parliament on Friday to tighten regulation of mortgage lending with the aim of preventing bubbles in the real estate market.

The bill, approved in the first of three readings, also widens the scope of assets and counterparties the central bank can operate with to conduct monetary policy, bringing its range of operations in line with the European Central Bank.

Under the bill, the central bank would get the power to set binding limits on the value of collateral versus the loan total, borrowers’ debt load, and monthly debt payments versus their income.

The bank began setting non-binding limits in 2017 as the central European country’s real estate prices rose amid low interest rates, rising incomes and administrative bottlenecks in building new housing.

The growth in house prices was the fifth highest in the EU in the third quarter of 2018, up 8.6% year-on-year, according to Eurostat data.

The bank has sought the legal entitlement to impose the limits on banks and to widen its reach to branches of foreign banks and non-banking lenders that have been outside the scope of current regulations.

The bill had been submitted in 2017 but the parliament did not discuss it prior to an election that year.

The centre-right opposition argued then and now that the regulation was unnecessary and would make mortgages inaccessible to many families.

The law would allow the bank to impose lighter limits on lending to young people under the age of 36.

The bank now recommends that mortgages should not exceed 90% of property values and that no more than 15% of customers should be given loans worth more than 80% of a property’s value.

It also wants banks not to lend in excess of 9 times annual income, and debt servicing costs should not exceed 45% of income.

Reporting by Jan Lopatka; Editing by Toby Chopra

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