Is the HNB rushing to tighten credit conditions? 'Should 98.5 percent of citizens suffer?'

The Croatian National Bank (HNB) is reportedly considering stricter conditions for housing loans amid concerns over rising property prices, geopolitical tensions, and market instability. These potential measures come after previous regulations introduced by the central bank have already reduced demand for such loans, with many citizens struggling to meet existing criteria. Experts warn that further tightening could place additional pressure on households, particularly given the high cost of real estate in major cities like Zagreb. The HNB implemented macroprudential measures last year that limited loan-to-income ratios to 45 percent of household income and mandated a minimum down payment of 10 percent of the property's purchase price. These rules were designed to mitigate risks associated with rising house prices and ensure financial stability. However, according to experts, these measures have not been sufficient to curb the challenges faced by prospective buyers. Real estate analyst Boro Vujović noted that the average price of an apartment in Zagreb has reached around €300,000, requiring buyers to have approximately €60,000 in cash to meet the required down payment. This threshold poses a significant barrier for many individuals, especially younger buyers who often lack the necessary savings. The situation has led to a noticeable decline in interest among potential homebuyers, despite some statistical indicators suggesting otherwise. According to data from the HNB, the number of housing loans has increased by roughly 15 percent annually. However, this growth has slowed in recent months, with a rise of just 12 percent in the past three months. This slowdown correlates with a drop in property sales exceeding 20 percent, indicating a broader trend of reduced consumer confidence in the real estate market. Kreditni posrednik Vjeko Peretić highlighted that both intermediaries and banks have observed a decrease in interest in housing loans, reflecting a shift in buyer behavior. While the HNB has not officially disclosed its plans regarding future lending policies, informal discussions suggest possible additional restrictions. These could include reducing the proportion of the loan relative to household income, limiting the loan amount compared to the property’s value, or shortening the repayment period. Some analysts speculate that a combination of these measures might be considered to address emerging risks. Peretić expressed concern over the potential impact of these proposed changes, noting that only 1.5 percent of borrowers currently face difficulties repaying their loans. He questioned whether 98.5 percent of responsible citizens should bear the burden of new regulations, especially if the economic outlook worsens in the future. His comments underscore the delicate balance the HNB must strike between ensuring financial stability and avoiding unnecessary hardship for the majority of the population. Experts emphasize that the issue extends beyond housing loans. Vujović pointed out that the primary challenge lies in cash loans, which many consumers are reluctant to take on due to cultural attitudes toward debt. He warned that the reluctance to pay off credit installments could lead to more severe financial consequences if left unaddressed. Additionally, the European Central Bank (ECB) plays a crucial role in shaping the lending environment through its control of interest rates. With inflation trends showing no immediate signs of abating, there is a possibility of further increases in borrowing costs, which could exacerbate the current challenges faced by both lenders and borrowers. The final decision on potential regulatory adjustments will depend on the ECB’s upcoming policy decisions, which are closely watched by financial institutions and market participants alike. As the situation evolves, all stakeholders remain attentive to developments that could influence the future of housing finance in Croatia.