7/2026 Aleksandr Kornilov, Natalia Levenko. Mortgage risk and inequality during the Covid-19 crisis
Working Papers of Eesti Pank 7/2026
This paper examines how the Covid-19 pandemic reshaped the risk profile of newly issued mortgages and whether its effects differed across income groups. We use quarterly microdata on new housing loans in Estonia from 2018Q1 to 2025Q2 to analyse how the key risk metrics evolved over this period. Two-way fixed effects and quantile regressions are used to identify changes in lending standards and heterogeneity in them across borrowers. The results point to a sharp repricing of above-limit mortgages alongside some tightening in lending standards. Banks that were less exposed to risky lending before the pandemic adjusted more strongly in pricing and risk-taking behaviour. Lending conditions did not deteriorate for low-income borrowers, and their share among mortgage borrowers remained stable. Overall, the results provide new micro-level evidence on how borrower-based macroprudential tools interact with large macroeconomic shocks and the risk-taking behaviour of banks.
