Hungary's banks want Constitutional Court to repeal Orban's mortgage rate freeze

BUDAPEST (Reuters) - Some of Hungary's largest banks have asked the Constitutional Court to repeal Prime Minister Viktor Orban's interest rate freeze on retail mortgages, which has been extended several times and lenders see as an undue intervention into contracts.

Orban's government launched the relief measure on floating-rate mortgages in 2021, capping the interest rate that can be charged at 2.02% and preventing banks from subsequently seeking reimbursements for lost interest income.

A government spokesman did not immediately respond to an emailed request for comment.

"The interest rate freeze is a concerning measure from an economic, legal and ethical aspect not least because banks ... have informed clients several times in writing of the interest rate risks attached to floating rate mortgages," Hungary's Banking Association said.

Banks say Orban's government decided to extend the freeze, initially launched as a pandemic relief measure for borrowers, despite the pandemic ending and kept the scheme alive amid a retreat in inflation and steep central bank interest rate cuts.

The freeze is now set to remain in place until the end of June. Orban's government has also launched food price controls and forced banks, telecoms companies and insurers to forego planned rises in fees ahead of a 2026 parliamentary election.

OTP Bank, Erste Bank, K&H Bank and Raiffeisen have asked the Constitutional Court to declare both the interest rate freeze and its multiple extensions unconstitutional.

The profitability of Hungary's banks remains "outstanding by international standards" despite a retreat in rolling 12-month profitability from peak levels hit in May 2024, Hungary's central bank said on Thursday.

(Reporting by Gergely Szakacs; Editing by Gareth Jones)