People in Estonia have so far coped well with repaying their housing loans

Autori Taavi Raudsaar pilt

Taavi Raudsaar

Economist at Eesti Pank



Housing loans not repaid by their deadline were at a record low level of the past 20 years in November, and people have also generally managed well with repaying their consumer loans to the banks. The good performance in servicing loans has been helped by low unemployment and the savings built up in recent years, though the growth in them stopped in the second half of the year. Repaying loans will be harder next year, but the central bank believes the volume of loans overdue will still remain relatively low.

The volume of loans overdue at the end of November remained small. The share of housing loans overdue by more than 60 days held at 0.1% in November, which was the lowest level seen in the past 20 years. This means that around one borrower in a thousand of those who have taken a housing loan is more than two months late with their loan payments. If circumstances deteriorate, the first increase will be seen in overdue loans that are only a little past their payment date. The volume of loans overdue by 10-30 days has however remained small. Repayments of consumer loans have also proceeded successfully so far. The share of consumer loans overdue more than 60 days has held at 1.1-1.3% in recent months, which is also a low level in historical comparison.

The ability to cope with repaying loans has been helped by low unemployment, the improvement in the economic climate in recent years, and savings accumulated earlier. Whether a borrower can repay their loans depends mainly on whether they have a job and an income. The number of people unemployed has started to rise in recent months, but the unemployment rate is still low in comparison to the average of the past decade. In the decade before this year, people’s purchasing power and ability to save generally increased substantially, and so savings have accumulated well. The forced savings during the pandemic have added to this in the past couple of years. This year it has been apparent that people have started to use the savings they built up earlier, as savings have stopped growing and deposits have started to shrink gradually.

The rise in Euribor has not yet passed through in full into loan repayments, as the interest payments on most loans taken out earlier are recalculated every six months. The six-month Euribor reached 2.4% by the end of November, and was around 2.7% last week. The average interest rate on outstanding loans has equally risen from 2% at the end of summer to 3.2% in November. Money markets forecast that the six-month Euribor will rise to around 3.5% in 2023, and will then fall to a little below 3%. This means the average interest rate on outstanding loans in the coming years will be about the same as the rate before the financial crisis of 2008.

Repaying loans will be harder next year and the volume of loans overdue will increase, but it will still remain relatively low. Eesti Pank estimates that the share of housing loans overdue by more than 60 days will rise from its current 0.1% to 0.3% in 2023, which is still a low level. Continuing rises in the price of the consumer basket and in Euribor will make repaying loans harder, and a lot of families with loans will have to reduce their spending. Different families will face widely different circumstances, but Eesti Pank does not expect that a large number will face difficulty with loan repayments. It is forecast that this will be helped by unemployment growing only moderately. The average income of a housing loan borrower is about a third higher than the average income in Estonia, and so such borrowers will be a little better placed to cope in more difficult circumstances. The commercial banks have followed the requirement from Eesti Pank to apply a total interest rate of at least 6% when calculating the ability of borrowers to repay housing loans.


Please note: Eesti Pank published the statistics for credit institutions and lease companies for November 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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