Over tenth of borrowers in Estonia have outstanding home loan bigger than collateral

Photo: SCANPIX

 In the case of more than one-tenth of the Estonian households that have taken out a housing loan the outstanding amount of the loan is bigger than the value of collateral, it appears from the a fresh study by the Bank of Estonia.

"It's a problem above all for those borrowers who wish to change the place they live," the central bank's vice governor Madis Muller said at a press conference on Wednesday. "It isn't a problem when the borrower is able to service the loan."

The central bank has no precise reference base for the data, as this was the first time that the topic was examined in the financial stability survey. An indirect indicator is offered by the financial stability survey from spring 2011, which says that an estimated one-third of borrowers at the time had a loan to collateral ratio higher than 100 percent.

In the spring 2013 survey, the central bank said the financial buffers of the households having loan obligations have increased thanks to increased incomes and lower base interest rates.

Of households having loan obligations nearly 56 percent had savings last year, compared with 50 percent of all households.

"It's rather the households having debt that have monetary savings, for them it is possible to put money aside too. It's rather the bigger-income households that borrow," Muller said.

Savings are on a downward trend in Estonia since 2008, according to the central bank.

It also appears from the financial stability survey that despite the weak external environment the ability of businesses and households to service their loans has improved. The share of overdue loans is on the level of 3.3 percent this year.