The housing loan market has revived rapidly since the coronavirus outbreak in the spring

Raido Kraavik
Raido Kraavik
Economist at Eesti Pank

The wide-ranging restrictions introduced in the spring to stop the coronavirus spreading brought a lot of uncertainty into the housing market. This made those looking for new homes more cautious and several new housing developments were put on pause, though projects that were already underway were still completed. By the start of autumn the housing market had largely got over its initial shock.

The number of transactions for residential dwellings was around 37% lower in April than a year earlier, which was largely due to transactions in the secondary market. The number of transactions started to rise swiftly from July though, and in September it rose above its level of a year earlier. Neither has there been any fall in prices in the housing market as a whole. The price index for housing was up by 4% over the year in the second quarter, and the initial data show that the rise in prices was similar in the third quarter. The rise in prices may have been driven though by an increase in the share of transactions with new housing, which is not indicated in the statistics. Transaction data indicate that in certain market segments, particularly transactions with older housing, prices have stopped rising.

The return of activity in the housing market is also reflected in loan contracts signed. Contracts were signed in September for a total of 127 million euros, which made it one of the most active months of recent years for loans. The number of housing loans secured with a mortgage issued to households was around 5% lower than in September last year though. After the financial crisis of 2008, the housing loan market remained in the doldrums for several years, but the impact of the coronavirus crisis so far has been short lived.

There may be several reasons for the rapid growth in demand for housing loans. It may partly be that some buyers postponed purchase decisions in the spring but were ready to go forward with the transactions as the situation became clearer. The incomes of households are higher than they were in the 2008 crisis and they have much more in savings, which allows them to make the down payment on a loan. A lot of households that kept their jobs have continued to save during the coronavirus crisis. In consequence the bank deposits of households have increased since March by 612 million euros to 8.9 billion euros. Yearly growth in deposits has picked up to 11.6%. Borrowing for housing is also encouraged by the expectation that interest rates will remain low for a longer time.

Banks have been ready during the crisis so far to fund purchases of housing on similar conditions to those that applied before the crisis. Although the average interest rate rose a little on housing loan contracts signed in April and May, it has come back down again in subsequent months. There was no change in the second quarter in the average loan-to-value (LTV) ratio, debt service-to-income (DSTI) ratio, or maturity of housing loans issued.

 

Eesti Pank published the statistics for credit institutions and lease companies for September on its website today. The statistical release describes the main changes in the statistics on credit institutions and leasing companies, covering the volume and structure of assets, loans and leases issued, deposits, and interest rates on loans and leases. The release is independent of economic policy releases and is presented separately from them.

Additional information:
Hanna Jürgenson
Eesti Pank
5692 0930
press [at] eestipank.ee