National Bank warns of people struggling to repay mortgage loans

National Bank warns of people struggling to repay mortgage loans
Geert Sciot, National Bank (BNB-NBB) director Jean Hilgers and National Bank (BNB-NBB) governor Pierre Wunsch pictured during a press conference of the BNB/ NBB Belgian national bank on the Financial Stability Report, Tuesday 07 June 2022, in Brussels. Credit: Belga / James Arthur Gekiere

The National Bank of Belgium (NBB) has warned banks in the country that the rising energy prices and increased cost of living due to the war in Ukraine could result in many people struggling to pay off their mortgages.

In its Financial Stability Report 2022 published on Tuesday, the NBB stated that, although the Belgian financial sector remains stable and profitable following the pandemic, indirect effects such as market corrections and a rise in volatility on financial markets, among others, could have a significant impact on financial stability.

The Bank warned that the current challenges could also have an impact on the potential increase in repayment difficulties. This is particularly true for households whose property has a low energy performance rating, as they will be more heavily affected by the rising energy prices.

According to the report, for almost half of the residential loans granted in 2021, the banks did not hold the Energy Performance Certificate (EPC) label of the property in question. The NBB stressed that the banking sector therefore urgently needs to systematically record energy efficiency for all new loans, "especially in terms of collateral."

Of the houses linked to existing loans of which banks have information regarding the EPC label, one-third of sold properties score poorly, meaning that many of the households living here will continue to see their energy bills rise unless they invest in renovations to improve the energy efficiency.

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The NBB added that, for existing loans, permanent access to regional databases on the energy score would help to collect the data. Furthermore, it stressed that buyers too should take the energy performance into account.

'Real estate bubble'

The NBB predicts a possible fall in the value of some real estate assets on the Belgian residential property market, against a "backdrop of a rapid and marked rise in interest rates."

Warnings of a so-called housing bubble, in which rising housing prices are fuelled by demand, leading to speculators pouring money into the market, followed by demand decreasing, resulting in a large drop in prices, are nothing new.

Between 2020 and 2021, property prices in the country skyrocketed, however, prices recently started plateauing as a result of the energy crisis and lower consumer confidence. How big the overvaluation of the market is at the moment is unclear, according to the NBB.

Finally, in view of the strong rise in interest rates, the financial institution also called on Belgian banks to take different potential interest rate scenarios closely into consideration in the future regarding the behaviour of depositors and insurance companies, with respect to the possible surrender of insurance contracts before maturity."

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