Home loan interest rates much higher than a year ago

Apartment buildings in Mustamäe.
Apartment buildings in Mustamäe. Source: Ken Mürk/ERR

The average home loan interest rate was 2.4 points higher in December compared to a year ago on the back of rising Euribor. Growing home loan costs are motivating people to renegotiate contracts.

The interbank Euribor exchange rate, after years in the red, exceeded 0 percent again last June and has since then climbed to nearly 2.7 percent. This has also seen commercial banks' home loan interest rates grow.

Bank of Estonia data puts the average interest rate of a secured home loan in December at 4.4 percent, up from just 2 percent during the last month of 2021. This amounts to an interest rate hike of 2.4 points on year.

Anne Pärgma, head of home loans at Swedbank, told ERR that Bank of Estonia statistics doesn't really make it possible to find the average rate as commercial banks sport different base rates.

The Bank of Estonia has previously pointed out that home loans interest margins have fallen as banks in Estonia get a lot of their money from deposits that sport a near-zero interest rate.

This means that while banks' interest costs have not grown to any notable degree, the rise of Euribor has bolstered profits.

Pärgma said that Swedbank's margins did not change in 2022, with the average base interest margin at 1.85 percent, down from 1.92 percent in early 2021.

People interested in renegotiating interest rates

The average interest rate of existing home loans on balance was 3.59 percent in December, up from 2.01 percent in May of last year.

Rising monthly payments have prompted customers to try and renegotiate conditions.

Pärgma said that Swedbank started receiving more such requests since Q3 of last year. "People want to discuss whether they still have a favorable interest rate and whether it and other expenses could be revised," she said, adding that customers are often surprised by how much the Euribor hike affects their monthly payment.

Bank of Estonia data suggests the number of new home loans fell drastically in December. Banks issued a total of €170 million worth of home loans, while the number of payments associated with new contracts fell notably to 20 percent below even the 2018-2019 volume.

The six months' Euribor had risen to 2.959 percent by Monday. Experts believe the base rate could climb as high as 3.5 percent. The rate was 5.4 percent in the fall of 2008.

The six months' Euribor rate growing by 1 point hikes the monthly payment of the average Estonian home loan of €100,000 for 20-30 years by €55-60.


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Editor: Marcus Turovski

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