A person with 1700 euro income will see their home loan limit increase by 21000 euros in April
has not been enough to pay for the desired home purchase price. Changes to home loan regulations by Eesti Pank mean that a person with an average monthly income of approximately 1700 euros will see their maximum home loan limit increase by around 21,000 euros in April.
Honestly – this is not an April Fools' joke! It's just that starting from April 1st, a regulation by the President of Eesti Pank will come into effect, which establishes a new procedure for calculating the loan payment-to-income ratio limit. Banks will no longer need to add a so-called "stress test" of an additional 2% to the actual interest rate when calculating a home loan client's payment capacity to account for potential Euribor increases, if the total interest would thereby exceed 6%.
Bigbank welcomes this change, because indeed in today's economic situation it is unlikely that Euribor could rise by another 2%. The practical impact of the change in rules can be examined using the example of an average Tallinn resident. According to Statistics Estonia data, in the last quarter of 2023, the average gross salary in Tallinn was approximately 2200 euros, which according to a salary calculator translates to a net salary of approximately 1700 euros.
When applying for a home loan, this means mathematically that if the 6-month Euribor is currently, for example, 3.9% and a risk margin of 1.7% is added to it, then today the client's payment capacity must be calculated at 7.6% interest (3.9% + 1.7% + 2%), but from April 1st onwards, payment capacity will be calculated at 6% interest. In practice, the change means that a client whose net income is 1700 euros and who has no other obligations can today get a loan of a maximum of 120,000 euros, but under the new calculation method they can get a loan of 141,000 euros.
The new rules apply equally to all banks, but it's always worth getting quotes from all banks to get the best offer on the market.
If you ask, you shall receive!
Today competition in the home loan market works better not only because banks have started doing things differently, but because client behavior has changed. If a client only takes home loan quotes from a few of the market's largest banks, then only those market participants who are already satisfied with their market share today compete with each other – it makes sense that you shouldn't expect a winning offer from them. However, if a client takes quotes from all market participants, they can this way be sure that they are getting the truly best offer available to them in today's market situation. This year, several smaller growth-focused banks have made good offers on the market, starting with Bigbank's January campaign, where we clearly stated that no one can get a higher margin from us than 1.65% – and other banks have also made interesting offers to smaller customer groups. This certainly makes clients think and act.
Banks have always competed with each other, at least Bigbank has from the start tried to offer clients the best market offers and other banks certainly don't just watch as all clients take their home loans from Bigbank – they adjust their offers as well. This is exactly how competition should work in a free market. I've often read suggestions from clients on forums and in comments that if you want to get good terms for your loan, then also get a quote from Bigbank, which generally comes out better than what your home bank offers – and then go and negotiate with your home bank and often you'll get a better offer from them than you would have initially. You just have to be active yourself, because if you ask, you shall receive!
