The Estonian Business and Innovation Agency (EISA) plans to boost its endowment capital by €800,000, to improve the guarantees on home loans to set target groups, for example young families or people who want to buy real estate outside of the main population centers in Estonia.
Banks less readily provide loans for such purposes, EISA says.
According to the explanation letter concerning the endowment capital increase bill, a housing loan guarantee is intended for people who want to either take out a loan to buy a new house or to reconstruct an existing one, yet want to reduce their down payment obligation, with rural areas a particular focus.
There are five different target groups: Young families, young professionals, buyers of energy-efficient housing or energy-efficient housing reconstruction, families with children, and Estonian Defense Forces (EDF) or Defense League (Kaitseliit) veterans.
The explanatory letter states that: "The guarantee for the target group of buyers or renovators of housing in rural areas is intended for people who want to take out a loan for the purchase of a new housing or for the reconstruction of an existing one, making it possible to obtain a larger loan from the bank than the value of the property allows and the bank would be willing to give under normal conditions."
"According to the forecast, it is necessary to increase the endowment capital from 2024, when the endowment capital will no longer be sufficient to finance the rapid growth in portfolio. In total, an increase in the endowment capital of €11 million is required," the communique went on.
Behind this rapid growth in portfolio is an increase in grants for the reconstruction of apartment buildings, which EISA also offers.
The institution predicts the growth of the housing association's loan guarantee portfolio from €49 million in 2022 to €134 million euros in 2028, i.e. nearly a threefold rise in six years (forecast).
In terms of categories of recipients, a person up to 35 years of age with a higher education, secondary specialized education or vocational education, with whom an employment contract, service contract or board member contract has been concluded, constitutes a young specialist.
An additional condition is that a loan applicant must not be on probation in relation to a court judgment.
The explanatory letter also stated the proportion of self-financing as a condition of the guarantee, which must be at least 10 percent of the value of the collateral for the loan.
For families with children the proportion for self-finance is set at at least 5 percent of the value of the collateral for the loan.
A family with children consists of parents raising at least three children up to 19 years old (inclusive) jointly or separately, or are guardians of the children.
Two people can jointly apply for a loan, at least one of whom must belong to the stated target groups.
The housing to be purchased or reconstructed must be located outside the list of locations prepared by EISA.
The excluded list is: Larger settlements in Harju County and all municipalities adjacent to Tallinn, with the exception of Ardu, Habaja, Loksa, Rummu and Ämari; all cities and townships in Tartu County, with the exception of Alatskivi, Kallaste, Rannu and Rõngu, and also the towns of Haapsalu, lääne County, Kohila, Rapla County, Kuressaare, Saaremaa, Paikuse municipality, in Pärnu County, the City of Pärnu, Rakvere, Lääne-Viru County, Rapla, Rapla County, Sauga, Pärnu County and Viljandi, Viljandi County.
The amount of the guarantee must be up to 80 percent of the unreturned main component of the credit, but at the same time cannot exceed €80,000.
Additionally, the value of the property to be purchased or reconstructed must be covered by at least 25 percent of the loan.
Furthermore, a property may not be let out during the validity period of the loan agreement.
The existing EISA endowment capital has been used so far to provide the guarantee service for home loans in rural areas.
The explanatory letter states that the endowment capital boost is budget-neutral, since it is a financing transaction.
EISA was formed from the merger of the formerly separate KredEx and Enterprise Estonia organizations.
Editor: Grete-Liina Roosvee, Andrew Whyte