Bank of Estonia (Eesti Pank) governor Madis Müller says that while support from state credit agency KredEx could be pressed into action in getting home loan purchases up and running in rural areas and outside of the capital city and its environs – particularly for young families – the government also needs to rethink conditions under which loan guarantees are currently being offered.
The central bank's main concern is as much rapidly rising real estate prices as it is loan volume growth.
Speaking on ETV political discussion show "Esimene stuudio" Thursday night, Müller said: "It is probably necessary to offer help in buying a home outside Tallinn, for example, where the value of real estate in terms of collateral is not as secure as a Tallinn apartment. I absolutely agree that the state could support young families in buying their first home."
The bank's position is the government should also review seriously target groups of guarantee's from state loan body KredEx.
The Bank of Estonia said last week that KredEx guarantees – which can see borrowers obtain loans of up to 90 percent of a property's value – should be tightened up, to avoid a real estate bubble and ensuing levels of too-high household debt, prompting economics affairs minister Taavi Aas (Center) to say options for young families to obtain home loan guarantees should be protected.
Müller said Thursday that while support for home buying in rural areas should remain in place "However if we look at where the growth has come from, for example, the category of young professionals has grown the fastest, to which practically everyone who has acquired vocational education qualifies," adding that climate change policy and state support relating to that was not ambitious enough, he added.
Müller also said he didn't expect interest rates to rise much in the near future.
"I think at least we can assume – going on the best knowledge from the market - that given all the economic indicators, interest rates are unlikely to be hiked by the central bank in the next two years. Euribor can, of course, fluctuate up and down," he said, referring to the daily averaged interest rates which Eurozone banks offer to lend unsecured funds to each other.
A 5 percent rate would be unlikely five years from now, he added, though this has to be put alongside the fact that home loans are generally for 30-year periods, during time which interest rates can potentially rise anyway.
KredEx guarantees have grown a lot in the past five years, he added, making up nearly 30 percent of new loans issued, despite the fact that the down-payments required are less than the 15 percent set in 2015 as a minimum self-financing component.
This situation needs rectifying, he said.
KredEx had come under fire last year in particular due to a €39-million loan issued as part of its coronavirus crisis strategy to an unfinished real estate project in central Tallinn, with critics saying since the project was not yet generating revenue – part of it is to be set aside for commercial use – it should not have received support of that size or from that source.
Editor: Andrew Whyte