The Austrian central bank warns against overheating the real estate market

The Austrian central bank warns against overheating the real estate market. The Austrian Financial Market Stability Board (FMSG), made up of representatives from the Ministry of Finance, the OeNB and the Financial Supervisory Authority, warns of growing systemic risks in the real estate market and the easing of bank lending conditions for individuals. The Board draws attention to the significantly faster growth of mortgages for private households, which reached 6.6 percent year on year in April, as well as real estate prices (an increase of 12.3% in the first quarter of 2021). This development in Austria is also noticeable in the European comparison. For observers, this shows "signs of growing overheating of the real estate market". In the case of price corrections, this has often led to a significant decline in living standards in many countries in the past. The FMSG found that the risk tolerance for approving loans for the purchase of real estate has increased. Very low interest rates and fierce competition between financial institutions have led to a significant decline in margins. The result is a lighter allocation of real estate loans. Financial experts point to a directive that they drew up in September 2018 for the allocation of real estate loans. In it, they recommended a share of a person interested in a loan of at least 20 percent of the purchase price, a maturity of a maximum of 35 years and a debt service quota of a maximum of 30 to 40 percent of net income. At present, the share of excessively high debt service and mortgage quotas is substantial and has also risen compared to the average of the last five years. The Bureau emphasized that credit allocation standards, in particular with regard to the debt service quota and mortgages, should be improved in order to ensure the stability of the financial market and to eliminate the systemic risks of a potential real estate bubble. Therefore, experts strongly urge Austrian banks to comply with the directive. The FMSG was established in 2014 with the aim of strengthening the stability of the financial market. The Board may issue recommendations to the Financial Supervisory Authority and draw attention to possible risks.