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What is foreseen in the Bank of Albania's decision, how much will the installment be and the repayment term? How will the values be calculated and what percentage will the bank cover when a citizen applies for a loan to purchase their first home?
The decision of the Bank of Albania has come into force, which limits loans granted by second-tier banks for the purchase of housing by citizens.
The decision has been published in the official gazette and states that no bank will provide loans to citizens who want to buy their first home for more than 85% of its value.
While those seeking a loan to purchase a second home, the loan amount they will be able to receive when it is in lek will be 80% of the property value.
For a loan taken out in lek, the loan installment should not be more than 40% of the citizen's income. So if the monthly income is 100 thousand lek per month, the installment should not be higher than 40 thousand lek.
Whereas when the loan is requested in foreign currency, for the first house the loan value will be up to 75%, and decreases to 70% for the second property. As for the monthly installment, it should be up to 35% of the income value.
The maximum term for loan repayment will be up to 30 years, or another term will be set by the bank taking into account the borrower's age, in order to avoid having to repay a loan at retirement age.
Full decision
Based on and for the implementation of Article 12, letter “a” and Article 43, letter “c”, of Law No. 8269, dated 23.12.1997, “On the Bank of Albania”, as amended; and of Regulation No. 44, dated 4.10.2023, “On data reporting, identification and monitoring of indicators on lending and investments in real estate”, Article 4, Article 13, Article 14, point 1, letters “b” and “c”, and point 2, Article 15, point 1, letter “a” and point 2, and Article 16; upon the proposal of the Financial Stability Department of the Bank of Albania, the Supervisory Council of the Bank of Albania,
Decide:
1. For new residential real estate loans provided by banks:
a) to approve the establishment of upper limits for the indicator "loan-to-value ratio, at disbursement" (HnV_D), as follows:
i. in lek, HnV_D should not exceed the value of 85 percent;
ii. in lek, for the purchase of a second (and subsequent) house or for rental, the HnV_D should not exceed 80 percent;
iii. in foreign currency, the HnV_D should not exceed 75 percent;
iv. in foreign currency, for the purchase of a second (and subsequent) home or for rental, the HnV_D should not exceed 70 percent;
b) to approve the establishment of upper limits for the indicator "debt service to income ratio, in disbursement" (ShBnA_D), as follows:
i. in lek, ShBnA_D should not exceed the value of 40 percent;
ii. in lek, for the purchase of a second (and subsequent) house or for renting out, the ShBnA_D should not exceed 35 percent;
iii. in foreign currency, the ShBnA_D should not exceed 35 percent;
iv. in foreign currency, for the purchase of a second (and subsequent) home or for rental, the ShBnA_D should not exceed 30 percent;
v. to determine the value of the borrower's debt, in addition to the value of the specific loan (and other loans that he may have in the financial system), the bank will also include any other debt for which the bank has obtained reliable information from communication with the borrower or prior consultation of relevant databases;
c) allow banks to apply exemption quotas from the above restrictions in each of the HnV_D and ShBnA indicators, provided that, in total, the value of the exempted loans does not exceed 15 percent of the volume of new loans that have been approved and disbursed (even partially) during the quarter.
This exemption quota will include refinancing facilities granted during the quarter for existing loans that may exceed the indicator limit.
Banks must identify the loans and refinancing facilities that are included in the exemption quota individually and clearly indicate them in the quarterly reporting they submit to the Bank of Albania;
d) exclude from inclusion in the calculation of the restrictions under letters “a”, “b” and “c” above:
i. loans disbursed under schemes that support public housing policies;
ii. loans disbursed for housing renovations related to improving energy efficiency or switching to renewable energy sources, up to a value of 3 million lek (or the corresponding foreign currency equivalent if disbursed in foreign currency);
iii. disbursements under non-refundable public grants related to improving energy efficiency or switching to renewable energy sources in housing;
e) recommend to banks the implementation of a maximum limit on the maturity of the loan disbursement, regardless of the currency, as a minimum between:
i. 30 years;
ii. the number of years until the borrower reaches retirement age (or the borrower who reaches this age sooner in the case of a loan with co-borrowers).
2. This decision shall be implemented by banks for new residential real estate loans disbursed from July 1, 2025.
3. This decision shall be reviewed no later than 2 years from the date of its entry into force. /Pamphlet/
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