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Tuesday 19.06.2018 | Name days: Nils, Viktors

First mortgage instalment to require twice as much time to gather for residents

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUBecause of the recently approved amendments to the Insolvency Law in Latvia, residents living in Riga will require twice as much time to gather funds to afford a first mortgage instalment, as noted by Swedbank economists.

In Q3 2014, the time necessary for households in Riga to gather money for the first mortgage instalment has reduced by two weeks, reaching 24.5 months. However, considering that amendments also provide for a significantly larger amount for first instalments, residents from now on will have to spend twice as much time gathering the necessary amount: more than four years.

In Tallinn and Vilnius, the period of time necessary to gather the required mortgage amount has increased by approximately three months, reaching 30,20 and 36.4 months respectively, according to Swedbank Housing Affordability Index.

On average, households in Riga diverted EUR 180 for mortgage maintenance in Q3 2014. This amount in Tallinn and Vilnius was EUR 281 and EUR 222 respectively.

Riga’s housing affordability index has demonstrated a slight increase in Q3 2014, with average wages still growing more rapidly than housing prices. However, the recently approved amendments to the Insolvency Law have significantly increased the amount of the first instalment for mortgage on top of increasing the amount of time necessary to gather the money. This has seriously impacted households’ capabilities to afford mortgage services. In Tallinn and Vilnius, housing affordability index has decreased because of a rapid decline of housing prices.

Compared to the same period of 2013, in Q3 2014 Riga’s HAI has improved slightly – from 158 to 160. 160 index means the standard household’s income was 60% higher than necessary to divert no more than 30% of family income on mortgage. The growth of the index was cultivated by growth of net wages (8.7% in Q3 2014). Housing prices have increased by an average of 6.5%. Affordability was worsened by a slight increase of interest rates by 0.08 percentage points.

Activity on the housing market was fluctuating over the course of Q3, rising rapidly in July-August and declining in September. Fluctuations were mostly caused by transactions made by non-residents, which is in turn due to amendments to the Immigration Law.

Swedbank economist Andrejs Semjonovs says HAI measures the ability to maintain standard mortgage, but it does not measure the ability of households to afford the mortgage service. Recent amendments to the Insolvency Law will significantly reduce mortgage availability; probably doubling the size of the first instalment and the time necessary to gather enough money to afford it. This will reduce households’ ability to afford better housing conditions. Residents with low income will suffer the most and this will only serve to increase the gap in the quality of life for the population.

Tallinn’s HAI has declined to 142 in Q3 2014 (154 the year before). The decline of affordability was caused by a rapid increase of housing prices (14.6% over the course of the year, which is one of the most rapid in Europe), with prices nearly reaching the level of 2007. Housing demand remains behind supply. Because of this, it is expected that price growth will become slower.

HAI in Vilnius remains the lowest among Baltic capitals, reducing to 124 in Q3 2014. This was because of a rapid growth of housing prices (13.6% over the course of the year).


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  1. Linda says:

    Same in UK need sizeable deposit to get a mortgage. Personally, if I had to do it again I wouldn’t bother. Would be far less skint if had had social housing!!

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