The requirements regulating the issuing of housing loans are intended to strengthen the resilience of borrowers and lenders against unfavourable economic developments, and to limit excessive credit growth in the growth phase of the credit cycle and in turn contain the increase in real estate prices.

From 1 March 2015 all the banks operating in Estonia will have to comply with three requirements when issuing housing loans. These limits are an LTV limit, a DSTI limit, and a limit on the maximum maturity of loans.

1) The loan-to-value (LTV) ratio is found by dividing the amount of a housing loan by the value of the property used as collateral for it. At the moment the decision to grant the loan is taken, the LTV ratio may not exceed 85%. The LTV ratio for housing loans with KredEx guarantee can be up to 90%.

2) The debt service-to-income (DSTI) ratio is found by dividing all the principal and interest payments that the borrower must make for loans each month by the monthly net income of the borrower. The calculation of the loan payments for loans with variable interest rates uses either the interest rate in the loan contract (base rate plus margin) plus two percentage points, or an annual rate of 6%, whichever is higher. At the moment the decision to grant the loan is taken, the DSTI ratio may not exceed 50%.

where n is all the credit agreements of the borrower including the new housing loan.

3) The maximum permitted maturity of a housing loan contract is 30 years.

Banks will have to abide by all three requirements when issuing new housing loans. To ensure that banks have sufficient flexibility in making decisions about lending and in assessing the risks associated with it, and thus to help make sure that the credit market operates as efficiently as possible, Eesti Pank will permit banks to issue up to 15% of their housing loans each quarter with conditions that breach the limits.

Requirements

1) Loan-to-value (LTV) limit for housing loans: 85%*
2) Debt service-to-income (DSTI) limit: 50%
3) Maximum maturity of a housing loan: 30 years

* Up to 90% for housing loans guaranteed by KredEx

Permitted exceptions

up to 15% of the amount of housing loans issued by a credit institution in a quarter

Applies to

all credit institutions operating in Estonia, including the branches of foreign credit institutions

Entry into force

1 March 2015

Legal act Eesti Pank Governor’s Decree No 17 of 12 December 2014 „Limits on granting housing loans and maximum loan maturity“