Along the increasing number of transactions in the real estate market, mortgage lending has also exhibited a strong upward tendency in the past years. To finance these new loans, banks can – among others – either directly issue mortgage bonds or take refinancing mortgage loans from mortgage banks, which are in turn also funded through mortgage bond issuances. The MNB also deems funding through mortgage bonds an important matter: in June 2015 the central bank issued a decree to mitigate the maturity mismatch of the banking sector’s assets and liabilities denominated in HUF. The decree regulating the Mortgage Funding Adequacy Ratio (MFAR) requires domestic credit institutions to finance their residential mortgage loans in at least 15 percent by long term, stable mortgage-backed funding from 1 April 2017. Due to these developments, the mortgage bond market has started reinvigorating; two new mortgage banks have started operating and the volume of mortgage bond issuances has also risen significantly. Mortgage bond issuances have reached nearly HUF 400 billion since October 2016.

Parallel with increasing mortgage lending and declining long-term yields, the net volume of issuances may continue to grow following the October 2016 upward shift in the stock of mortgage bonds, which is also supported by the tightening of the MFAR regulation to be effective from 1 October 2018. This will bring about an increase in the minimum required MFAR level from 15 to 20 percent, which further decreases the on-balance sheet maturity mismatch of banks; due to the expected new issuances, the mortgage bond market may also deepen further. However, there is no transparent indicator that would adequately mirror the state of the HUF mortgage bond market. Currently, no indices tracking mortgage bonds issued in local markets exist within the region either; the new indices of the BSE can be regarded unique from this perspective. The development and publishing of the indices fits the series of steps taken by the MNB so far to deepen the mortgage bond market.

The BSE, in cooperation with the MNB and taking into account the results of consultations with market participants, has developed three new mortgage bond indices: a total return index, the BSE Mortgage Bond Total Return Index (BMBX Total Return), and two yield indices with three (BSE Mortgage Bond 3 Year Yield Index – BMBX Yield 3Y) and five (BSE Mortgage Bond 5 Year Yield Index - BMBX Yield 5Y) years of maturity.

The indices are constituted of HUF denominated mortgage bonds, with fixed interest rates, traded at the BSE at any given time, which also meet further specific requirements included in the index handbooks. Indices are based on the proprietary quotes of mortgage bond dealers.

The publication of the initially monthly index values starts on 1 December 2017, with a 6-12-month observation period, during which the BSE and the MNB will further develop the methodology of the indices based on feedback from market participants (mortgage banks, credit institutions, investment companies, institutional investors, etc.) and practical experiences, so that it fits market needs as much as possible and that the indices may be employed as official benchmarks also.