Editorial: reasonable limits that limit nobody

PHOTO: Urmas Nemvalts

Who would not remember the loan boom preceding recession? Everybody does – the lenders, the borrowers, and those that abstained. The last group was small. For we also remember that in the competition, loan conditions ended up altogether utopian. Almost, one might say, it was easier to get a loan than to go without.

Having learned the lesson, in several countries reasonable rules have been imposed on commercial banks to avoid possible home loans euphoria; now, Eesti Pank is headed down the same path. The banks are selling reliability and a central bank creates the environment to offer it. Certain limits do not hinder the market, rather tidying it up and bringing order. Just such steps were kept in mind by the Riigikogu, granting central bank the powers needed.

In favour of the decision are the relatively stable times currently at real estate market. According to Statistical office, a total of 41,676 real estate sale/purchase transactions were done last year worth €2bn; this means that year-on-year, amount of deals increased 15 percent while the sum rose by 18 percent. The average purchase/sale deal was €48,900 – a two percent rise year-on-year. Last year, the number of deals was a whopping third less than at the height of the boom in 2006.

Thus, Eesti Pank has laid down its loan limits, basically corresponding to current restrictions imposed by banks upon themselves – internally. Still, it’s not the case of breaking in through an open door. Very fast, a boom might serve to ease up such conditions.

Even so, a broader rise of purchasing activity or a price rise is nowhere to be seen. Last year, a research was carried out by real estate firm 1Partner among major competitors, revealing that among themselves a price race is deemed a possibility in five to seven years. But when the soup is already boiling, too late then to think about a recipe. So, this seems a good time to prescribe the rules.  

Surely, such decisions always come with the danger that should the market again heat up some day, super deals will be coming from all kinds of lenders of doubtful background. But probably the central bank has assessed the risks, the people’s overall loans awareness has increased, and the needed agencies exist to keep the loan-baddies in check.