Hungarian Banks Appeal to Constitutional Court Over Extended Interest Rate Cap
Major financial institutions challenge the legality of government-imposed interest rate restrictions for residential mortgages.
The Hungarian Banking Association, representing several member banks, has submitted a request to the Constitutional Court seeking to invalidate the government’s interest rate cap on residential mortgages, known as the 'kamatstop.' According to the press release issued by the association, the government introduced the interest rate cap in 2021 in response to the COVID-19 pandemic, applying it to variable-rate residential mortgage loans.
Under this regulation, financial institutions are limited to charging a maximum interest rate of 2.02%, corresponding to the three-month BUBOR rate as of October 27, 2021, irrespective of the terms stipulated in pre-existing contracts.
Additionally, the ability to enforce contractual interest rate differentials was also restricted.
The measure was later extended to include residential financial leasing agreements and non-subsidized mortgage loans with interest fixed for periods of up to five years.
Despite the end of the pandemic emergency, the government continued to extend the interest rate cap.
This prolonged limitation held until December 31, 2024, but was subsequently extended for a sixth time to June 30, 2025, even as inflation rates decreased from 18% to 6.5% and the broader interest rate environment was on the rise.
The Banking Association's statement expresses that the interest rate cap is problematic from economic, legal, and ethical perspectives.
It emphasizes that banks, in accordance with regulations and supervisory guidelines, have repeatedly informed their clients about the risks associated with variable-rate mortgages and have offered the option to fix rates, which some clients accepted.
The Banking Association contends that the regulation and its extensions interfere with private legal relationships without constitutional authority, constituting an unnecessary and disproportionate intrusion.
As a result, major banks including OTP Bank Plc., OTP Mortgage Bank Ltd., Erste Bank Hungary Ltd., K&H Bank Ltd., and Raiffeisen Bank Ltd. are urging the Constitutional Court to ascertain the unconstitutionality of both the initial interest rate cap and its subsequent extensions.
Under this regulation, financial institutions are limited to charging a maximum interest rate of 2.02%, corresponding to the three-month BUBOR rate as of October 27, 2021, irrespective of the terms stipulated in pre-existing contracts.
Additionally, the ability to enforce contractual interest rate differentials was also restricted.
The measure was later extended to include residential financial leasing agreements and non-subsidized mortgage loans with interest fixed for periods of up to five years.
Despite the end of the pandemic emergency, the government continued to extend the interest rate cap.
This prolonged limitation held until December 31, 2024, but was subsequently extended for a sixth time to June 30, 2025, even as inflation rates decreased from 18% to 6.5% and the broader interest rate environment was on the rise.
The Banking Association's statement expresses that the interest rate cap is problematic from economic, legal, and ethical perspectives.
It emphasizes that banks, in accordance with regulations and supervisory guidelines, have repeatedly informed their clients about the risks associated with variable-rate mortgages and have offered the option to fix rates, which some clients accepted.
The Banking Association contends that the regulation and its extensions interfere with private legal relationships without constitutional authority, constituting an unnecessary and disproportionate intrusion.
As a result, major banks including OTP Bank Plc., OTP Mortgage Bank Ltd., Erste Bank Hungary Ltd., K&H Bank Ltd., and Raiffeisen Bank Ltd. are urging the Constitutional Court to ascertain the unconstitutionality of both the initial interest rate cap and its subsequent extensions.
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