The housing market continued to be very active in October

Autori Gaili Grüning pilt

Gaili Grüning

Economist at Eesti Pank



A record 184 million euros was issued in housing loans in October. The number of contracts signed was similar to the number signed in May, but the average amount borrowed was larger than before. The housing loan portfolio of the banks grew by 8.6% over the year. This is the fastest growth of the past decade, and half as much again as the average for the euro area. The increased debt burden of households increases the risk though that they will later face difficulties in repaying loans.

At the same time, the average annual interest rate on housing loans has fallen, which reflects the increased competition in the housing loan market. The average interest rate on housing loans with a mortgage issued to households was at its lowest ever rate of 2% in October. The low interest rate brings down loan servicing costs, but also means that the borrower needs to consider that base interest rates could rise in future. Interest rates offered by banks in Estonia have previously peaked at 6%, but the average interest rate now reflects only the risk margin of the bank.

The share of loans with a high debt service-to-income (DSTI) ratio increased in the third quarter. To limit the risks from excessive credit growth, Eesti Pank has set requirements for the commercial banks that restrict the growth in the debt burdens of borrowers. One of these limits the debt service-to-income ratio for borrowers. This means that the monthly loan liabilities of the borrower cannot exceed 50% of the borrower’s income even if interest rates rise. Like it had in the first half of the year, the share of new loans that had a debt service-to-income ratio that was very close to the limit increased in the third quarter. This means that there are ever more households that have taken housing loans but that are vulnerable to a change in their loan servicing costs or in their income.

As the economy has recovered, businesses have also been borrowing more boldly. There has been particularly rapid growth in real estate loans to businesses. The growth in the stock of loans to real estate companies was around 10% in October. The stock of corporate loans has increased over the past half year by a total of 330 million euros, and 239 million euros of this has been in loans issued to real estate companies.


Please note: Eesti Pank published the statistics for credit institutions and lease companies for October 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 statistical release is independent of economic policy releases and is presented separately from them.

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Ingrid Schmuul
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Eesti Pank
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