Romanians may borrow up to €50,000 for housing

Volksbank and Bankpost, both among the Top 10 Romanian banking system, are not granting any mortgages for the time being.

Due to the international financial crisis, banks are reluctant to finance housing acquisitions and have imposed rather low ceilings for loans, due to a lack of long-term financing and a sharp decline in prices on the real estate market.

On the other hand, clients are increasingly reluctant to pay 2.5 times the value of a loan over 20 years, due to the same price instability. However, those who have no other solution to buy a property must cope with annual effective interest rates exceeding 10 percent for euro-denominated loans and as much as 28 percent for loans in lei.

The monthly interest rate for a loan worth €50,000 would slightly exceed €400 in the case of Romania’s largest lender, BCR, controlled by Austrian Erste group. A €49,000 loan from Piraeus Bank will cost a monthly €438.

Last year, the National Bank of Romania (BNR) relaxed lending conditions, allowing those who earn more than €1,500 per month to borrow money for housing with no down payment. The crisis led BNR to tighten the rules last fall. In spite of a slight relaxation at the beginning of 2009, most banks are still reluctant to grant mortgages. If they do, many lenders demand a down payment worth at least 15 percent of the property’s value.

Furthermore, most banks accept a maximum indebtedness degree of 40-52 percent of a client’s income. The only exception is Piraeus Bank, which has a maximum indebtedness degree of 70 percent. Once a client applies for a loan, the analysis of the application takes between one week and a month. Beside the interest rate, clients must pay a loan granting fee, an application analysis fee, an account management fee, an advanced payment fee, an account non-use fee, a tax for property evaluation, a Loan Bureau fee, and life or/and home insurance policy. In an attempt to revive the demand for mortgages, lenders have started lowering interest rates for loans. The demand for mortgages dropped by more than 50 percent in the first quarter of 2009, compared to mid-2008, and lenders are giving the go-ahead for an even smaller percentage. While mortgage growth exceeded an annual 60 percent in 2008, new loans are no longer covering for monthly reimbursements. The engine fueling the decline includes housing prices, increased uncertainty due to the global crisis, and high financing costs for loans as the leu has lost more than 20 percent to the euro.

A study carried out by UniCredit Tiriac Bank shows that some 25 percent of persons interviewed plan to borrow money from banks in the coming 10 years, but only 75 percent of them can afford a mortgage.

The affordability index calculated by the bank has dropped to 3.8, from 6.5 in 2007. On the interbank market, the six-month EURIBOR rate amounted to 2.67 percent yesterday, while the six-month ROBOR rate was 14.45 percent. Data for this story has been collected since the beginning of April.