Eesti Pank changes home loan requirements. Photo: Shutterstock
In April, Eesti Pank changes the requirements on how a commercial bank must calculate the maximum credit capacity if the applicant wants a new home loan. The change means that in the current high interest rate situation, the maximum borrowing capacity of a person applying for a loan is the same as before the European Central Bank’s interest rate increase.
The main change is that the central bank has changed the interest rate rule that commercial banks must use in calculating the monthly loan payment when assessing the borrower’s maximum credit capacity. This is currently the interest rate specified in the loan agreement, to which 2 percentage points have been added, or the annual interest rate of 6%, whichever is higher.
From 1 April the 2 percentage point surcharge will disappear and the calculation will have to be made either with the interest rate of the loan contract or with 6%, whichever is higher.
That is to say, over the last year and a half, base interest rates have risen rapidly and this in itself has tightened the credit environment. Furthermore, the possible loan volume was limited by the obligation to carry out the calculation of the monthly loan installment with an interest rate higher than 2 percentage points. For example, in November 2023, when banks’ average mortgage interest rate was 5.7%, banks rated customers’ creditworthiness with an average interest rate of 7.7%.
“The main purpose of changing the interest rate calculation is to ensure that, in a high market rate environment, considering an interest rate higher than 2% does not overly constrain people’s ability to borrow,” he explained Jaak Tõrs, head of the finance department. stability department.
Tõrs added that if credit growth were to accelerate significantly in the coming years and there was a risk of a credit boom – banks and people would start to take too big risks – then Eesti Pank is ready to tighten the requirements for the granting of real estate loans.
Explanatory examples of the change in the formula for calculating the maximum credit capacity of a person applying for a home loan
Example 1: if the bank wants to grant a home loan with an interest rate of 5.7%, then according to the current rule the maximum borrowing capacity of a person in terms of interest rate is calculated by the formula 5.7% + 2 percentage points, or a total of 7.7%, because it is higher than 6%. From April, according to the new rule, in this case the interest rate in the creditworthiness evaluation formula will be 6%, because it is higher than 5.7%.
Example 2: if the bank wants to grant a home loan with an interest rate of 6.2%, according to the current rule, the maximum borrowing capacity of a person in terms of interest rate is calculated by the formula 6.2% + 2 percentage points, or a total of 8.2%. From April, according to the new rule, in these cases the interest rate in the creditworthiness evaluation formula will be 6.2%.
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2024-01-26 08:24:43
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