75% of housing loans issued to buy apartments in Riga, its vicinity

In the first six months of this year SEB banka issued personal housing loans totalling EUR 77 million which is a 21% increase from the first six months of 2018. Of these, 51% were the loans granted under the Altum state aid programme for families or young pofessionals.

“The majority of all loans (75%) were issued for purchase or repair of apartments, 15% for purchase of houses and around 6% of loans were granted for construction of houses. About 70% of all housing purchase transactions were made on the secondary market but the demand keeps growing in the segments of new housing and renovated houses built in the pre-war period. Willingness of people to buy private houses is also growing.

Arnis Škapars, Member of the Board of SEB banka, said: “In the first six months of this year we observed the most active loan flow in recent years which was due to the increase of overall activity in the housing market in Riga and its vicinity. The real estate market trends are related to people's ability to pay – with the growth of their income more and more people can afford to invest in real estate and buy a housing that suits their preferences and needs. The interest in construction of private houses is also rising but there is a significant trend that one must keep in mind when planning the budget – the construction costs tend to increase during the construction process. Therefore people have to think carefully about whether they can afford building their own house or maybe it would be more rational cost-wise to buy an existing house and adjust it to one's liking".

“The greatest challenges include also housing availability. Currently there is a gap between the price that a buyer can afford to pay and the price that a seller wants to get for the property. Buyers' financial capacity in Riga mostly does not extend beyond the purchase of a 2-3-room apartment costing EUR 1,200-1,500 per square metre while there is a deficit of such properties on the housing market and the situation is unlikely to change any time soon," he said.

The biggest activity in terms of both the number of approved loans and the loan amounts is still observed in Riga and its vicinity with around 80% of all issued financing concentrated in the region. Among the regional centres, the highest activity has been recorded in Jelgava, Liepāja, Ogre, Valmiera and Sigulda. The number of loans issued under the Altum state aid programme also keeps growing – around 700 state-guaranteed housing loans totalling about EUR 45 million have been issued since the beginning of the year.

Of these, 76% are loans to families with children and 24% are loans to young professionals.

“People apply for housing loans after serious deliberation and treat their loan liabilities responsibly. Moreover, a growing number of borrowers choose to take out a credit insurance on their loans to safeguard themselves and their families against different risks, for example, serious health problems or a job loss. Out of all housing loans issued this year, 80% carry a credit insurance," Arnis Škapars said.

According to the observations by SEB banka, the average borrower is aged 30-35 years, has higher education and can afford to spend around 24% of his/her income on monthly loan payments.