Average Home Loan Grew by a Quarter in a Year, Critical Threshold Reached

The average home loan issued by Bigbank in June was 127,100 euros, which is a quarter larger compared to a year earlier, but in recent months the volume has remained at the same level.

"The growth in the average home loan amount has stopped and has remained stable around 130 thousand euros for several months. This is a sign that incomes have not grown at the same pace as prices and for many families we have reached the ceiling of borrowing capacity near this point," said Jonna Pechter, head of Bigbank Estonia, and added that the period of rapid growth in loan volumes was last in the final quarter of the previous year and in December the average home loan issued by Bigbank was even over 140 thousand euros.

According to Pechter, home buyers have been facing several difficult choices for some time. "Mortgage lending capacity has not been able to keep pace with the rise in Tallinn real estate prices. This means that people have either had to postpone home purchases or settle for a smaller home than originally planned, but one that is still financially affordable," added Pechter.

According to Pechter, the share of loans with special repayment schedules has grown dramatically in Bigbank's home loan portfolio, which allows borrowers to pay only loan interest for the first ten years if they wish. "In June, one in four borrowers using Bigbank's home loans already preferred a special schedule. More and more people are finding that when they start repaying the principal of their home loan five or ten years from now, due to inflation and increased incomes during the interim period, each euro has become so-called cheaper for them," said Pechter, who noted that the special schedule option is now also being used to refinance existing obligations. "In light of the general rapid price increases, people are reviewing their obligations and looking for solutions on how to get through the stormy inflation period more easily," explained the head of Bigbank.

Bigbank is an Estonian commercial bank specializing in loans with international reach, whose balance sheet exceeded one billion euros in 2021.