LHV: The average Estonian home loan payment is less than 900 euros per month

05.11.2024

The changing economic environment has also led to changes among home buyers, according to LHV’s statistics for the third quarter. More and more home loans are being taken out with a co-applicant, and more people are considering switching banks to improve loan conditions.

Catlin Vatsel, the Head of Private Financing Department at LHV, explains that applying for a loan with a co-applicant is partly due to the continued high price level of real estate, which may make a loan too much of a financial burden for a single applicant. ‘While a high Euribor rate could mean a higher burden, the loan repayment is usually around 35% of the applicant’s income. If the loan is taken out for two, it is usually smaller,’ Vatsel explained. According to her, borrowing with a co-applicant reflects that home buyers realistically assess their financial capabilities and are able to fulfil obligations even in more difficult times. In addition, the fall in Euribor will have a positive effect on borrowers, as home buyers will have more free money in their hands in the future, which will hopefully help to alleviate the housing-related costs that will rise in winter.

‘There has been a lot of interest in refinancing a home loan this year, and clients are looking for better solutions for themselves. This is made possible by fairly intense competition between banks. However, it may be considered that it makes sense to review the interest rate and amend the loan agreement with one’s bank, especially for those who have been in the loan agreement for a longer period of time or whose financial situation has improved significantly,’ Vatsel noted.

The average loan amount at LHV was 146,000 euros in the third quarter, which is 6,000 euros more than in the same period last year. ‘Of course, real estate is more expensive in Harju County, Tallinn, and Tartu, while elsewhere in Estonia, where LHV also issues loans, real estate prices are significantly lower. For example, the total price of a medium-sized apartment is 137,000 euros in Tallinn, 116,000 euros in Tartu, 94,000 euros in Pärnu, 66,000 euros in Rakvere, and 68,000 euros in Viljandi,’ Vatsel added.

Self-financing

The overview by LHV shows that the average amount of self-financing has decreased, currently remaining at 36,000 euros, which is nearly 4,000 euros lower than last year. ‘People are using other real estate in addition to their funds to cover their self-financing,’ Vatsel commented. In addition, around 20% of borrowers have used the KredEx guarantee, which allows them to apply for a loan with their self-financing starting from 10%.

Who is borrowing today?

According to LHV, the average borrower in Estonia is a 35-year-old full-time employee with a gross salary of slightly under 3,000 euros. Compared to last year, the average borrower is a year younger and has 50 euros more income. Around 45% of borrowers also have a child or children in the family.

‘Last year, the average term of a loan agreement was 24 years, but this year it is two years longer, i.e. 26 years. A longer period helps to smooth out the higher interest rate and keeps the monthly loan payment more affordable,’ Vatsel explained. Today’s average monthly home loan payment is approximately 860 euros, which is 20 euros lower than a year ago.

Home bank exchange is not uncommon

LHV’s statistics show that more people than before are considering changing banks to improve loan conditions. ‘For example, the number of new agreements with LHV has increased by more than 70% compared to last year,’ Vatsel notes.

‘The current market favours buyers – it gives people the opportunity to thoroughly analyse which home best meets their needs and expectations. In addition, sound financial planning helps to ensure that loan repayments remain affordable even in the event of possible economic changes,’ Vatsel explains.

LHV Group is the largest domestic financial group and capital provider in Estonia. The LHV Group’s key subsidiaries are LHV Pank, LHV Varahaldus, LHV Kindlustus, and LHV Bank Limited. The Group employs approximately 1,200 people. As at the end of September, LHV’s banking services are being used by 445,000 clients, the pension funds managed by LHV have 116,000 active clients, and LHV Kindlustus protects a total of 169,000 clients. LHV Bank Limited, a subsidiary of the Group, holds a banking licence in the United Kingdom and provides banking services to international financial technology companies, as well as loans to small and medium-sized enterprises.

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