Average housing loan exceeds €100,000 for first time

New apartment buildings.
New apartment buildings. Source: Siim Lõvi /ERR

A record €184 million was issued in housing loans in October, the Bank of Estonia announced on Thursday with the average loan exceeding €100,000 for the first time in history.

The number of contracts signed was similar to the number signed in May, but the average amount borrowed was larger than before. The housing loan portfolio of the banks grew by 8.6 percent over the year, the central bank said.

This is the fastest growth of the past decade, and half as much again as the average for the euro area. The increased debt burden of households increases the risk though that they will later face difficulties in repaying loans.

At the same time, the average annual interest rate on housing loans has fallen, which reflects the increased competition in the housing loan market, the central bank noted.

The average interest rate on housing loans with a mortgage issued to households was at its lowest ever rate of 2.1 percent in October. Low interest rates bring down loan servicing costs, but also means the borrower needs to consider that base interest rates could rise in future. Interest rates offered by banks in Estonia have previously peaked at 6 percent, but the average interest rate now reflects only the risk margin of the bank.

To limit the risks from excessive credit growth, the Bank of Estonia has set requirements for the commercial banks that restrict the growth in the debt burdens of borrowers. One of these limits the debt service-to-income ratio for borrowers. This means that the monthly loan liabilities of the borrower cannot exceed 50 percent of the borrower's income even if interest rates rise.

Like it had in the first half of the year, the share of new loans that had a debt service-to-income ratio that was very close to the limit increased in the third quarter. This means that there are ever more households that have taken housing loans but that are vulnerable to a change in their loan servicing costs or in their income, the Bank of Estonia said.

As the economy has recovered, businesses have also been borrowing more boldly. There has been particularly rapid growth in real estate loans to businesses. The growth in the stock of loans to real estate companies was around 10 percent in October. 

The stock of corporate loans has increased over the past half year by a total of €330 million, and €239 million of this has been in loans issued to real estate companies.

For more information, see the statistical release on Bank of Estonia's webpage.


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Editor: Kristjan Kallaste

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