Loans in that class now attract a higher risk weight than for owner-occupier mortgages, requiring banks to fund such loans with a higher proportion of equity. The LVR restrictions have strengthened bank balance sheets against housing market shocks. The share of banks’ exposures to riskier mortgages has fallen across a variety of borrower types.
Hence, in order to enhance the process of real convergence as much as possible, accession countries should ensure that they make progress in the restructuring of their economies and gradually align them with those of the euro area. Real convergence is often interpreted as a catching-up in real income with the EU.