The active market for housing loans indicates high household confidence
The housing loan market remained active in November 2019. Although growth has been seen to slow in the economy of late, labour market conditions continue to favour workers. Rapid growth in wages has kept confidence high and demand for real estate remains strong.
The housing loan portfolio of the banks has expanded to 8 billion euros, meaning it has grown by some 7% over the year. There has also been a larger volume of new loans issued than at the same time last year. As housing prices have risen, the average amount borrowed is larger than previously. The average amount borrowed to purchase residential property increased by almost 10% over the year in the third quarter, to 84,000 euros.
The corporate loan portfolio stood at 9.3 billion euros in November, which was about the same as a year earlier. The portfolio would have grown by 4%, but the portfolio of one bank was taken out of Estonia in October, and one branch ended its activity in November. A little less than usual has been issued in new long-term loans in recent months, which could indicate a decline in investment activity. Corporate investment decisions may be affected by the more negative tone that is being used when the economy is discussed.
The average interest margin on long-term loans issued to companies was notably higher than usual in November at 3.7%, as it was in the preceding two months. The rise was largely caused by individual transactions in the real estate sector and the lending conditions for corporate loans have not deteriorated as much. The average interest rate on housing loans fell in November to its level of the start of the year of 2.5%.
The banks operating in Estonia have lent a total of 19.3 billion euros. The loans are largely financed by the deposits of resident companies and households, which have grown in total to 15 billion euros. Household deposits have increased by 9% over the year to total 8 billion euros, while corporate deposits have grown by 5% to 6.9 billion euros.
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