Questions and answers about the new mortgage rules
On 20 July 2021 the National Bank issued a circular clarifying the new European Banking Authority (EBA) Guidelines on Loan Origination and Monitoring.
1. What exactly is changing and when do the new rules take effect?
European legislation has always expected banks to take a cautious valuation of residential property when calculating the capital charge. Institutions were therefore already able to use internal or external valuers for that purpose. The European Banking Authority (EBA) has now clarified the rules on the subject and harmonised them throughout Europe. The EBA Guidelines apply from 30 June 2021. However, the NBB will adopt a 6 month margin of tolerance to take account of the exceptional operational efforts that institutions have had to make during the COVID-19 crisis. This means that institutions have until 31 December 2021 to comply with the guidelines in practice.
2. What do banks base their property valuation on?
The new European obligations naturally also apply to Belgian banks and specify that all residential property must be valued before a loan is granted. The value can be assessed by an internal or external valuer. This can be done by visiting the property, but also by using advanced statistical models so long as they meet the EBA requirements.
3. Will Belgian banks pass on the costs of their valuation survey to the purchasers?
The National Bank expects that, in most cases, Belgian banks will use statistical models to determine the value of a residential property. A site visit is only necessary if, for example, the value of the property cannot be determined with sufficient certainty, the database contains insufficient properties with similar characteristics, or features specific to the property need to be taken into account. Compliance with the EBA requirements for the use of statistical models must, of course, be strictly monitored by the banks internally.
Since we expect Belgian banks to be able to base their estimate on specified statistical models for residential property valuations, there is no question of any survey and therefore no associated costs.
4. What is the use of this valuation, and what happens if the purchase price deviates from the estimated value?
The valuation result is an additional indicator for determining the property’s value, and in the case of a substantial deviation from the purchase price (as stated in the notarial deed) the bank must take that into account in deciding how much to lend.
5. Does the borrower have to make up the difference in the event of a substantial deviation? Don’t these new measures create an additional barrier for young people wanting to buy a house?
Not necessarily. The NBB’s policy allows banks to grant 35% of their loans at a Loan to Value ratio of over 90% for first time buyers. The NBB finds that most banks pursue a prudent policy and in a number of cases still have some leeway.