Greece sets cap on new mortgages

The Bank of Greece is imposing a cap on new mortgages to prevent excessive lending. In other words, the country’s central bank has decided to set a maximum loan limit in relation to the value of the property and a maximum limit for servicing the debt from housing loans in relation to the borrower’s total income.

The limits will be more flexible for first-time buyers in an effort to make it easier for young people to access bank loans to buy property.

The new limits will apply from 1 January 2025 and provide that the loan cannot exceed 80% of the commercial value of the property. Exceptions will be made for first-time mortgage borrowers, for whom the loan cannot exceed 90% of the value of the property. In addition, the cost of servicing a borrower’s loan obligations cannot exceed 40% of their annual income. The exception is again young buyers, for whom the limit rises to 50%.

Under the new rules, banks will be allowed to exceed the above two limits by 10% of the number of new disbursements, and the excess will be tracked separately for first-time buyers and other borrowers.

A first-time buyer is defined as someone who borrows from a bank for the first time to buy a house, regardless of whether they already own a property – e.g. following a parental allowance. The limit for the calculation of the debt service ratio (debt service in relation to income) will concern all the debts one has with the bank. In particular, if the instalment of a mortgage consumes 30% of your income, the bank should also take into account any other debts – e.g. from consumer loans or cards – and add these costs when calculating the index.

Net income, i.e. income after tax and social security contributions, is also taken into account when calculating the debt service ratio.

The setting of limits for housing loans is a measure applied by the majority of European countries, where the limits are in fact much stricter than those applied in the United States.

Original Story: Kathimerini | Autor: Evgenia Tzortzi
Edition: Prime Yield