Citizens in Serbia who have been repaying housing loans recently received updated calculations from their banks regarding their monthly installments, which took effect from January 2025. Following a decision by the National Bank of Serbia (NBS), the maximum interest rate on housing loans has been capped at 5 percent, which has led to higher installments for most borrowers. However, a few borrowers who took out loans after July 2022, when interest rates began to rise, will experience lower payments.
In December 2024, the NBS introduced a measure limiting the interest rate on housing loans to a maximum of 5 percent, effective from January 1, 2025. This decision followed a previous NBS ruling that capped the interest rate at 4.08 percent for the majority of housing loan borrowers.
As a result of the interest rate increase from 4.08 to 5 percent, the majority of borrowers will now face higher monthly payments. However, they will still pay less than they would have without the interest rate cap. For instance, the 6-month Euribor, to which most banks link their housing loan interest rates, is currently 2.68 percent. Adding the bank’s margin of 2.5 to 3 percent brings the total interest rate above 5 percent without the cap.
Who benefits from the new measure?
There are, however, a few individuals who are benefiting from the NBS’s decision, as their monthly installments will decrease.
These individuals are primarily those who took out loans after July 31, 2022. For them, the previous NBS limit of 4.08 percent did not apply, meaning their banks were calculating payments based on the initial interest rates, which could exceed 5 percent, especially for loans taken in 2023. With the new cap at 5 percent, these borrowers will see their installments reduced.
Examples of adjustments
To illustrate how the new limits are affecting monthly payments, let’s consider three examples of housing loans:
- 2018 Loan: A borrower who took out a loan in 2018 with a monthly installment of €202 will now face an increase of nearly €12 per month due to the interest rate hike from 4.08 to 5 percent.
- 2019 Loan: Another borrower with a loan from 2019, whose original payment was €285, will now pay an additional €28 each month.
- 2023 Loan: A borrower who took out a loan in January 2023 had been paying an interest rate of 5.386 percent in 2024. With the reduction to 5 percent, their installment has decreased by €11, from €314 to €303.
In cases where the agreed interest rate for a specific loan is lower than 5 percent during the year (e.g., if the Euribor rate drops), banks will apply the lower rate to the borrower’s calculation.
Cash loans and credit cards
In addition to housing loans, the NBS also introduced restrictions for other types of loans:
- Cash loans: The variable interest rate on loans in dinars cannot exceed 14.75 percent, while loans in foreign currency are capped at 7.05 percent. This change did not significantly affect debtors, as most banks already offer interest rates below these levels.
- Credit cards: The maximum interest rate on credit card balances is now capped at 17.75 percent. This rate is determined by the statutory default interest rate, which currently stands at 13.75 percent, plus an additional 4 percentage points.
- Overdrafts: For both permitted and unauthorized overdrafts on current accounts, the maximum interest rate is limited to 19.75 percent. This rate is calculated similarly to the credit card interest rate, based on the default interest rate plus 6 percentage points.
Conclusion
The NBS’s decision to cap interest rates on housing loans and other types of credit provides some relief to consumers, though many will still see higher installments. However, for those who took out loans after July 2022, this policy will result in lower payments. As the national economy continues to adjust to fluctuating rates, the NBS aims to provide stability and ensure that borrowers are not overburdened with excessive interest charges.