Analysis of the Repricing Practice of Newly Disbursed Housing Loans

Abstract

In the Hungarian banking system, newly disbursed, fixed-rate housing loans are typically repriced with a lag of several months after a change in the interbank rates, which can be viewed as the cost of funds for institutions. This paper examines the number of months it takes for a change in the interbank rates to pass through to the interest rates of newly disbursed housing loans with an initial interest rate period of over one year. The two-step analysis looks at the repricing practices observed for Certified Consumer-Friendly Housing Loans (CCFHLs) employing a descriptive approach, and then a vector autoregressive model is used to estimate the speed at which interbank rates pass through to aggregate housing loan rates. Based on the authors’ estimate drawing on aggregate interest rate statistics, the changes in interbank rates are incorporated into the mortgage rates applied by Hungarian banks in approximately four months; however, according to the interest rate condition data of institutions’ CCFHL announcements, banks’ repricing practices vary, leading to differences in the speed and extent of the interest rate changes following a shift in the cost of funds.