Estonia's Youngest Bank Manager: We Could Be Even Freer Than Finland on Home Loans

Estonia could allow young families to access their own home and make lower monthly payments by offering even 50-year mortgage contracts, comments Bigbank Estonia's head Arthur Taavet on the legislative changes that came into force in Finland yesterday, which allow mortgages of up to 40 years to be issued.

"In my opinion, this is primarily a matter of trust. Estonian financial literacy has been continuously improving, and so the state could today give up its kindergarten teacher role when it comes to mortgages," comments Bigbank Estonia's head Arthur Taavet, adding that he sees no strong argument for why the Estonian state should not allow its citizens to issue mortgages of even 50 years. "Rather, a longer loan period simply eliminates one specific so-called market failure in raising many people's quality of life," notes the 29-year-old bank executive.

"So far, we have all clearly seen that inflation does its work over time, and a mortgage payment from a couple of decades ago seems significantly more manageable at today's prices, while the value of real estate has risen considerably during that time," explains Taavet, who says that looking at what is happening in the world, it would be very naive to believe that we will live in the future in an economy where prices do not rise. But if prices do rise, it is always better to push payments further into the future, because the value of money simply decreases over time thanks to inflation.

According to the bank executive, since Estonia's restoration of independence, both people's average life expectancy and the retirement age have risen noticeably. "This means that as a society, we are already actually accounting for the fact that actively lived years are quietly being added, and a person can also enjoy their home purchased when young for longer."

Arthur Taavet acknowledges that with a longer loan period, banks also earn more income over the years, but this does not explain why the limit should be drawn at exactly 30 years today. "Here it is worth saying honestly that whoever earns income, the person pays for their residence anyway. If they don't pay interest to the bank, then they pay rent to a landlord. The question is rather how the understanding arose that it is more reasonable to direct money earned over decades to a landlord and pay more rent when real estate prices rise, rather than earn it oneself," comments Bigbank's head.

"Let every young family choose for themselves whether to live their whole life in a rental apartment, postpone buying their own home for a few more years, or buy a new home now and immediately," continues Taavet, who notes that a longer loan period allows for a smaller monthly payment, which in turn opens up the possibility for many families whose current income is not sufficient to buy the desired home. "According to a recent survey conducted at the request of a market participant, 89% of renters would exchange their current rental home for an owned home if the mortgage monthly payment was the same as their current rent. This shows quite clearly that there is no lack of desire or willingness to own a home, and the question comes down to whether regulations and loan terms allow a person to make that choice at all."