Image: VOLKER WEIHBOLD
For example, one could consider whether to use absolute euro amounts instead of the monthly repayment rate, which is currently a maximum of 40 percent of the household’s net income. That would be an approach to at least provide a little support to the weak construction sector, he said at the FMA supervisory conference.
The economist emphasized that he is fundamentally convinced “that this set of rules is important.” He also pointed out that the crisis in the construction industry, with declining construction activity, could have a negative impact in the long term, for example with a view to the green transformation of the economy. A switch to absolute values, which could provide a better view of the individual situation of potential borrowers, “would not undermine the purpose of the regulation”, but it would be an idea “that goes in the right direction”.
Higher penalties when exiting a fixed-interest loan?
Regarding the discussion about the high proportion of loans with variable interest rates, Felbermayr stated that “the regulation in Austria makes it very easy for borrowers to get out of a loan with fixed interest rates.” Although this is sometimes favorable for borrowers, it is also disadvantageous for the banks. One consideration would therefore be to make the penalty that is due if someone withdraws early from a fixed-interest loan higher. For borrowers, this would in turn reduce the interest rate risk in the long term, he argued.
Development of inflation underestimated
Felbermayr admitted that some economists underestimated the development of inflation, which ultimately led to an increase in interest rates and thus to higher costs for variable loans, “after the long period of calm.” For many market participants, the higher interest rates and the resulting risk came as a surprise. “The financial market supervisory authority must therefore ensure that these risks are identified and addressed at an early stage,” he appealed. In any case, a decline in the general level of interest rates or corresponding downward adjustments are not expected in the near future.
Felbermayr is worried about the high national debts in some European countries. “We have unfinished homework in Europe.” He referred to Italy, which has a debt ratio of 145 percent and whose interest burden is currently increasing enormously. “We can’t get out of this unpleasant arithmetic that with high national debt ratios there are problems with rising interest rates.” The Wifo director warned that future projects such as the green transformation would become less and less affordable for many countries.
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