BRD becomes latest bank to ease mortgage deposit requirements

Local bank BRD has decided to reduce its minimum deposit required for mortgages from 35 percent to 15 percent, according to local media reports. The announcement comes after the bank has previously increased its down payment requirements in the aftermath of the adoption of the debt discharge law in mid-May.

However, only some clients can benefit from the 15 percent down payment requirement, according to ZF. The new level will apply only for RON-denominated loans of up to EUR 250,000 and prospective buyers need to provide an additional guarantee besides the mortgaged property.

BRD is not the only bank to have made this change. Piraeus Bank announced in early August that it would reduce the deposit requirement for RON-denominated mortgages from 40 to 20 percent. The announcement came shortly after BCR, the largest Romanian bank, brought in a similar change, lowering its minimum down payment requirement from 35 to 25 percent. However, this only applies to prospective borrowers from the largest Romanian cities, including Bucharest, Cluj-Napoca, Timisoara, Iasi, Constanta, Craiova, Brasov, Oradea and Sibiu.

All three banks have lowered their required deposits after having previously increased them in the aftermath of the adoption of the debt discharge law in mid-May. The law, which allows the discharge of mortgage-backed debts through the transfer of the property to the creditor, was fiercely opposed by local banks who at the time argued that it would turn them into real estate managers.

After the law came into force, all major local banks increased down payments for mortgages from a previous average of about 15 percent to around 30 to 35 percent for RON-denominated loans and even higher for euro loans. They argued that this was a means to protect themselves from the higher risk brought about by the law. However, the enactment of harsher lending conditions coincided with the freezing of the government-guaranteed mortgage lending program Prima Casa. In turn, this has pushed the brakes on lending altogether.

According to BCR representatives cited by local media, the bank decided to ease its down payment requirements after it learned that the number of local clients who have so far asked for the discharge of their mortgage-backed debts has been much lower than initially estimated.

Indeed, fewer than 4,000 debt discharge applications had been filed with 24 local banks by early August, according to data made public by national bank governor Mugur Isarescu. The number is significantly lower than the “hundreds of thousands” of applications that local banks had warned about.