The growth of the home loan market, which started three years ago, continued through 2015 in Estonia and Lithuania, with the volume of loans growing by 4.3 and 4.7 per cent respectively, as indicated by the SEB Baltic Household Outlook.
“While the total volume of home loans increased in Estonia and Lithuania, it was still surpassed by the average growth of incomes in 2015, which was 6 per cent in Estonia and 5.1 per cent in Lithuania. Therefore, ultimately, the debt burden of households has not increased,” explained Mihkel Nestor, economic analyst for SEB Eesti.
The volume of new home loans issued in 2015, as compared to 2014, was 15 per cent higher in Estonia, 9 per cent higher in Latvia and 21 per cent higher in Lithuania. Regardless of the growth of the volume of new loans, in Latvia the portfolio decreased by 4.4 per cent compared to the end of 2014, as the volume of loans repaid by our southern neighbours exceeded the volume of new loans. Some Latvian families are still struggling with the loan obligations taken before the economic crisis and this affects the entire loan market. At the end of 2015, the proportion of home loan payments overdue for more than 90 days amounted to as much as 6.2 per cent of all home loans in Latvia. For sake of comparison, at the end of 2015, the proportion of home loan payments in Estonia overdue by more than 60 days amounted to 0.7 per cent of all home loans.
“When making borrowing decisions today, people are much more cautious, since they still remember the difficulties with loan repayments that resulted from the economic crisis. The volumes of new loans are mostly at pre-boom levels, which shows that this growth is driven by low base values and that the volumes are still relatively modest at the moment,” added Nestor.
Who is an average home loan client?
Loans for buying a new home are taken most actively between 25–34 years of age and the share of this age group on the market of new loans grew by three percentage points in each of the Baltic States in 2015. On average, in Estonia the highest loan sums of around EUR 48,000 are taken by people aged 25-34, while in Latvia and Lithuania the highest sums are taken by people aged 35–44 – around EUR 42,000 and EUR 52,000 respectively.
“Young people finance most of the purchase price of their new home with a loan, while those who are a bit older have enough savings to contribute more. This was also confirmed by statistics, as the loan amounts taken are significantly smaller in the case of people over 45, with the average amount comprising three fourths of the amount taken by younger people in Lithuania, two thirds in Latvia and only one half in Estonia,” added Nestor.
