More banks are deciding to reduce the buffer when examining creditworthiness.

This is good news for customers applying for a mortgage, as it can help increase the availability of a mortgage.

What actually is a buffer?

A buffer is a certain percentage requirement to ensure that a borrower will be able to repay the debt. Banks add it to the required monthly loan commitment in order to provide additional protection.

How does this rate work?

As interest rates continued to rise, the FSA in early 2022 recommended raising the buffer to 5 pp. This was to reduce the level of credit risk borne by banks due to the rising cost of debt service for borrowers. As a result, people who applied for a mortgage after April 1, 2022 experienced a significant decrease in their ability compared to those who applied for the same loan with identical earnings before the banking institutions raised the buffer to 5 pp.

Changes for the better!

The new year brings us further changes in the finance sector. Namely, the FSC ordered banks to reduce the buffer, recommending that it apply to a periodically fixed rate.

Currently, in some banks the buffer is still 5 pp, which means that the required monthly commitment is 5 pp higher. However, as of 1/03/2023, Millennium Bank is the third bank to decide to reduce the buffer to 2.5 pp, as a result of which this will help increase the availability of mortgage credit.

As a result, the ability of loan applicants will increase and they will be able to apply for a higher loan amount.