Croatian National Bank Tightens Credit Criteria for Home Loans

The Croatian National Bank (HNB) has announced plans to tighten credit criteria for calculating residents' creditworthiness when taking out a loan. They emphasize that these measures are preventive in nature and aim to maintain the stability of the financial system, as well as reduce inflationary pressures through reduced demand. So, what does this mean in practice? According to the new criteria, which will come into effect on April 1, the debt-to-income (DSTI) ratio for home loans will be capped at 45% of the borrower's monthly income. The loan amount cannot exceed 90% of the assessed value of the property (LTV ratio), while the loan term cannot exceed 30 years. Banks will take into account all outstanding loans, including overdrafts and credit card debt in calculating the borrower's total debt. However, monthly spending using charge cards with deferred payment will not be included. When all these amounts are added up and divided by the borrower's income, the DSTI ratio is determined. HNB has also stated that banks may, on a case-by-case basis, approve up to 20% of home loans exceeding the aforementioned limits, based on their own assessment. This would primarily be applied to loans where residents are addressing their housing needs, such as purchasing their first property.

How much credit can a married couple take out according to HNB's example?

HNB has presented a guideline example (non-binding) illustrating that a married couple with a combined monthly income of €2,500 can have a maximum monthly loan installment of €1,125, which is 45% of their income (DSTI ratio). The interest rate in the example is illustrative only, and actual interest rates may vary depending on market conditions and the bank's policy. Considering the conditions: 1. Limits based on the DSTI ratio - With a repayment period of 25 years and an interest rate of 4%, the maximum loan amount is €213,135. 2. Limits based on the LTV ratio - The loan amount cannot exceed 90% of the property's value. If the property is valued at €240,000, the maximum loan amount is €216,000. In this example, a married couple can take out a €213,135 loan, as this amount is lower than the LTV limit. They would need to provide the remaining difference of €26,865 (€240,000 - €213,135) from their own savings.

Cautious Approach to Home Purchase via Credit

For most residents, purchasing a property or house represents the largest lifetime investment, making it essential to be well-informed and prepared. A well-considered decision to purchase a property through a loan is based on understanding all steps in the process. Therefore, I always recommend using the services of credit intermediaries who are educated and experienced in the field of mortgage lending. Credit intermediaries will, among other things, provide you with an informative calculation of your creditworthiness, maximum loan amount, and monthly installment. An additional advantage is that credit intermediation services are completely free of charge! When you understand the conditions and process, you will be able to negotiate and choose the option that is most favorable and financially sustainable for you. Author: Martina Mataić Škugor Director of Opereta Credit Mediation

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