Budapest's Banks Sluggish in Response to Central Bank's Interest Rate Reductions

Published: December 04 2023

Budapest's banks have been slow to respond to the interest rate reductions set by the Central Bank. Despite continuous reductions in the base interest rate, financial institutions have shown little reaction. The freeze on mortgage loan interest rates implemented in October remains in place, and there have been no changes in personal loan rates. This article discusses the lack of response from banks and the potential implications for borrowers.

In December, the same scenario as November played out in the retail loan market, with only a few banks reducing the interest rates on their loans. The mortgage loans that are below the voluntary interest rate cap remained unaffected. The Central Bank has continued to decrease its base interest rate since May, with reductions totaling 1.5%. These reductions have also been reflected in reference interest rates that influence bank loan interest rates. However, banks have not adjusted their retail loan rates significantly in response to these changes.

One possible reason for the lack of response in mortgage loans is that banks preemptively reduced interest rates on October 9th, bringing them below the 8.5% Total Cost of Credit cap at the request of the Ministry of Economic Development. It appears that banks have already made their adjustments to reflect these reductions. However, the Ministry announced that the interest rate cap for mortgage loans may decrease further with another decision from the Central Bank, potentially in December. The question is whether this will be based on the November base interest rate reduction or if another reduction is expected this month.

The interest rate cap only affects the Total Cost of Credit for mortgage loans and does not directly influence the rates of other types of loans. Since October, there have been no interest rate reductions in personal loans, and this did not change on December 1st. Only one bank, CIB Bank, reduced interest rates for non-mortgage loans at the beginning of December. The interest rate reductions varied between 0.42% and 1.20%, depending on verified income and chosen interest period. Raiffeisen Bank also made changes to its mortgage loans in December by offering only 10-year fixed-rate loans and suspending the sale of other loan products. Although this move is not unprecedented, as there are other banks that offer only fixed-rate mortgage loans to clients.

The sluggish response of Budapest's banks to the Central Bank's interest rate reductions has resulted in limited reductions in mortgage loan rates and no changes in personal loan rates. The freeze on interest rates implemented in October remains in place, with the possibility of further reductions in the near future. Borrowers may need to explore alternative banking options to find more favorable loan terms.

What was the response of banks in Budapest to the central bank's interest rate reductions? The response of banks in Budapest to the central bank's interest rate reductions has been sluggish. They have not significantly reduced their interest rates despite the continuous reduction in the base rate by the National Bank of Hungary (MNB).

Has the interest rate on mortgage loans changed in Budapest recently? The interest rate on mortgage loans has not changed significantly in Budapest recently. The interest rates on housing loans have been frozen for two months due to the interest rate cap that has been in place since the beginning of October.

Is there any change in the interest rates on personal loans in Budapest? There has been no change in the interest rates on personal loans in Budapest recently. The banks have not responded to the central bank's interest rate reductions in this category of loans.

Has the interest rate on housing loans below the voluntary interest rate cap been affected in Budapest? The interest rates on housing loans below the voluntary interest rate cap have not been affected in Budapest. The banks have not made any adjustments to these loan rates despite the reductions in reference rates.

What actions are the banks in Budapest waiting for in order to reduce interest rates? The banks in Budapest are waiting for a reduction in the interest rate cap. They had implemented preemptive interest rate reductions on mortgage loans in October, but it seems that they have limited their adjustments since then. The Ministry of Economic Development announced that the interest rate cap on housing loans is expected to decrease further, possibly with another decision by the central bank in December.

Will there be any changes in interest rates for other types of loans in Budapest? There have been no changes in interest rates for other types of loans in Budapest. Both personal loans and other mortgage loans have remained unaffected by the interest rate reductions.

What is the impact of the interest rate cap on the overall loan market in Budapest? The interest rate cap on housing loans has primarily affected the total cost indicator (THM) for housing loans in Budapest. However, it has not directly influenced the interest rates on other types of loans.

Have any banks in Budapest reduced their interest rates on mortgage loans? Only one bank, CIB Bank, has reduced its interest rates on mortgage loans at the beginning of December in Budapest. The extent of the reduction depends on the confirmed income and the chosen interest period.

Has there been any change in the offerings of Raiffeisen Bank for housing loans in Budapest? Raiffeisen Bank in Budapest has made significant changes to its offerings for housing loans. From the beginning of December, they only offer mortgage loans with a 10-year interest period and a fixed interest rate. Other loan options have been suspended.

Is it common for banks in Budapest to offer fixed interest rate mortgage loans? It is not uncommon for banks in Budapest to offer fixed interest rate mortgage loans. Some banks have been offering only fixed interest rate options for a while now.