Banks do not forsee big problems with mortgage repayments

Apartment buildings.
Apartment buildings. Source: Siim Lõvi /ERR

Estonia's banks do not believe there will be a big problem with mortgage repayments in the future despite rising interest rates. They have no plans to reduce their own rates.

Home loan repayments are expected to rise in the coming months after the European Central Bank hiked the Euribor rate to almost 3 percent.

The trend is likely to continue this year, Tuesday's "Aktuaalne kaamera" reported. The program spoke to several banks about the issue.

"By the end of the first quarter, the three-month Euribor could be somewhere around 3.1 percent, and in fact, by the end of the year, the forecast is that it will be relatively close to 3.12 percent," said Sille Hallang, head of SEB's private client banking division.

Catlin Vatsel, LHV's head of private finance, said: "While the interest rate on a home loan used to stay at around 2 percent, the new normal is more like 4 percent and above. That's what we have to adjust to."

Banks are not planning to reduce their interest rates and they do not believe customers will have problems meeting repayment schedules.

Apartments in Tartu. Source: Siim Lõvi /ERR

Currently, the number of people defaulting on loans is lower than ever before, AK reported. But SEB has seen a small increase.

"In December we saw a slight increase in the number of defaults and an increase in the number of customers applying for a payment pause. It is not a large number, but as we are comparing it to the previous months, the number still rose in December and we have already had requests coming in at the beginning of January," Hallang said.

Redundancies or a reduction in income are behind the rise. But forecasts are upbeat.

Tanel Rebane, Luminor's head of private banking, said: "We don't see a longer-term problem with the Estonian labor market anyway, and what this really means is that there is nothing wrong with the servicing of these home loans in the grand scheme of things."

However, the number of people applying for mortgages has fallen from its peak in 2021.


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Editor: Merili Nael, Helen Wright

Source: Aktuaalne kaamera

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