Bank of Estonia: As House Prices Rise, So Do Mortgage Sizes | New

Household demand for home loans remains strong. There were 168 million euros in home loans issued in April, and the banks’ home loan portfolio was up 10% year-on-year. While Russia’s invasion of Ukraine initially made Estonian households cautious about borrowing, demand for loans recovered fairly quickly, the central bank said in a press release.

Although less money was issued in the form of housing loans in April than last fall, more money was issued than last spring. The housing market remains active and prices continue to rise. The average home loan issued in April was 12% higher year-on-year, reflecting higher prices in the housing market. Demand was supported by household savings and strong income growth.

The amount of money lent by households under car rental contracts last month remained stable year on year at around 32 million euros. The number of rental contracts decreased somewhat and was lower than in the spring before the COVID-19 pandemic.

Whereas previously leases were signed equally for new and used cars, in the past two years around two-thirds of contracts signed with individuals have been for used cars. The current limited supply of new cars is also driving up prices, which also means an increase in the average size of a car rental contract.

In the first quarter of 2022, some €200 million in consumer loans were taken from banks and other creditors in Estonia, up €25 million from the first quarter of the previous year.

In total, 87 million euros were borrowed from banks in the form of consumer loans, stable over one year; this indicates that the general decline in confidence and the rise in prices have not yet particularly reduced demand for consumer credit.

The price of bank loans to households, meanwhile, continued to fall. The average interest rate on new home loans with mortgages in April remained at a record low of 1.9%, compared to 2% in April 2021. The average interest rate on car leases signed with households, meanwhile, stood at 2.4%, down from 2.5% in April 2021.

The lower interest rate indicates that household loan servicing costs are lower. However, the current average interest rate consists mainly of the banks’ interest margin, and the Bank of Estonia notes that consumers should bear in mind that interest rates may increase in the future.

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