Home loans growing in Estonia despite rising interest rates

According to Bank of Estonia data, mortgage loans were issued 10 per cent more in May than a year earlier, although the interest rate on new home loans has risen to 4.02 per cent. Car leasing saw annual growth of 38 per cent in May. SEB analysts note that individuals are postponing car purchases in hopes that the 2027 parliamentary elections will bring changes to motor vehicle tax.

Estonian residents are borrowing actively despite rising interest rates, according to fresh data from Bank of Estonia and SEB. In May, mortgage loans were issued 10 per cent more than in the same period last year, indicating that higher interest rates have not deterred home buyers.

Home loans growing

The total volume of mortgage loans issued to households reached 240 million euros in May. This is 6 million euros more than in April and 22 million euros more than a year earlier in the same period. The average interest rate on new secured home loans rose to 4.02 per cent in May, 0.07 percentage points higher than the previous month and 0.39 percentage points higher than a year ago.

The average interest rate on term deposits was 1.98 per cent in May, essentially the same level as in April (1.97 per cent), but lower than a year ago (2.12 per cent).

"Rising interest rates have not deterred home purchase decisions, and debt levels on existing loans remain low. However, there is no sign of significant growth in fixed-rate customers either," noted SEB representative Rein Karofeld.

Cars waiting for elections

The car leasing market saw annual growth of as much as 38 per cent in May. However, it should be noted that car sales fell significantly last year following the introduction of motor vehicle tax, which means the comparison base is lower.

According to SEB Leasing head Rein Karofeld, sales of new cars in May and June have been more vigorous than a year ago, but activity is partly illusory. "Nevertheless, the activity is illusory because increasingly, sales are affected by the March 2027 parliamentary elections. Individuals really do believe that elections will bring changes to motor vehicle tax and many are still waiting. The situation is better for sales to businesses," Karofeld explained.

Based on SEB statistics, solid loan and leasing activity continues in June as well, suggesting that loan demand in the coming months will remain strong.