“If a customer was offered a loan of €100,000 last year, if their salary did not change, they would only lend €80,000 today,” said Tanel Lebane, head of private banking at Luminor. Told. Some properties are moving out of people’s reach as property prices haven’t fallen that much yet.
The Bank of Estonia stipulates that personal loan obligations should not exceed half of normal income. Commercial banks often take a more conservative approach, setting the cap at 40%. Banks also look at how much money you have left over to pay bills and buy food after paying off your loan.
“Many people who were still eligible for loans last year because of the rising cost of living may not be eligible today because they have less reserves. That is the main factor affecting lending.”
demand down, supply up
Does this mean property prices will fall next? Rebane said it is possible but also depends on the property, the developer and how quickly the developer wants to sell. But demand will drop significantly and supply will increase.
“People who were hesitant to sell are putting more properties on the market than last year because of soaring prices. High energy prices mean that simply holding property makes no sense because you have to pay your utility bills. “It means that you have become a banker,” said the banker.
Over the past two years, real estate prices have risen by 20%. Analysts agree that the current price decline will continue, but they are divided on whether the decline will match previous highs.
“With recent prices, it is impossible to describe the situation as a market downturn.
Rising Euribor was considered a decade ago
Catlin Vatsel, head of LHV’s private lending department, said the maximum loan amount has also shrunk as spending for virtually all families has increased. “When issuing loans, we have to keep these things in mind and do so responsibly,” she said.
Banks have expected Euribor to begin temporarily rising over the past decade, Vatsel stressed. “The bank should calculate the mortgage at his 6% interest rate, which includes Euribor at his 4%.”
Swedbank is the only major bank in Estonia that has not changed the terms of its mortgages, said Anne Pärgma, head of mortgages. She added that Swedbank is taking a personal approach when people move from house to house and she has to handle two loans at the same time. “At that point, we will consider whether the person can handle both loans for a period of time,” she said.
Another thing Swedbank is looking at is private homes that are still under construction as prices are volatile. “We calculate the minimum construction costs and give people a headroom in case the project becomes more expensive,” he explains Pärgma.
Sille Hallang, head of SEB’s private banking division, said SEB had not changed the terms of the mortgage. “However, the amount of loans offered to customers has actually changed as inflation has increased their daily spending significantly. confirm.”
Mortgage interest rates go down
The number of new loan applications is declining in parallel with the amount of loans being offered. Applications are down 30-40% depending on the bank and time of year.
Swedbank had about 1,000 loan applications earlier this year, but that number is now down to nearly 700, suggesting that the actual interest may be even lower, Pärgma suggests.
“The application also reflects people who want to understand how the market works, what to prepare, etc. Not all applications mean that the person is trying to commit to a trade. No,” she added.
LHV’s Catlin Vatsel said demand has fallen by 30% in both the real estate market and loans since the summer.
Tanel Leveen said the situation is much the same with Luminor. He said most people buy a home when it’s needed, not when it’s good or bad, when they need good advice from their bank, and when they need to consider their needs realistically. Added when I bought it.
Bankers said that when the Euribor is negative, people are used to seeing only banks’ relatively modest margins. However, loans are now becoming more expensive and the decision really needs to be considered.
“One sound recommendation is that the price of a home should not exceed five years of income. you can,” he explained.
Estonia’s demographics are another concern for banks, explains Sille Hallang.
“The most active borrowers are 26 to 35 years old, and this age group will shrink by 20% between 2021 and 2026. This is another indicator impacting the mortgage market. I am just doing.”
Borrowers who can handle loans
All commercial banks have told ERR that their portfolios are doing well and that solvency issues have become less common. Mr. Hallang suggested that SEB’s portfolio has not changed, but that it cannot be ruled out that utility costs may still be soaring.
LHV’s Catlin Vatsel says deposits have tripled since the last crisis. Talen Rebane said Luminor is confident because he is pursuing a policy and believes there are people in its portfolio who can afford to repay loans. .
Bank representatives agreed that the previous financial crisis would not be repeated and that banks would not have to foreclose on people’s homes because both banks and borrowers are better prepared.
“I don’t think any bank wants to kick people out of their homes,” Harran said. She said that if people feel they are having trouble paying their loans, other expenses should be reviewed first, and those with problems should contact their bank immediately.
“The sooner we learn about payment problems, the better,” Harran said, adding that in most cases we can find a solution. I have to make sure it doesn’t disappear.”
Financing terms remain the same
A representative of a commercial bank said lending conditions were unlikely to tighten further in the future as banks were already taking a very conservative approach.
“We never issued loans lightly,” said Ann Palgma of Swedbank. “Lending incorporates a conservative approach and responsibility.” She said the difference between the amount a bank is willing to lend to the same customer could become smaller in the future.