Petko Dimitrov is the manager of Credit Map. One of the most – the fast-growing companies in the field of credit consulting.
He graduated from UNSS with a major in accounting. He has almost 10 years of experience in the field of banking and especially in the lending segment.
Hello, Mr. Dimitrov, two days ago the BNB announced that they are tightening lending in the home loans segment! What are the changes and how will this affect people who are still looking to take out a loan for a new home?
- Hello, a few hours after the information presented by the BNB, I got acquainted in detail with the attached report on the website of the regulator. I have analyzed it thoroughly and I can hasten to reassure people that this is not about impact measures that will directly affect the end user. What is actually new is that the BNB is creating a monitoring and accountability mechanism with which it aims to prevent the accumulation of risks in the system. The central bank declares that it will take follow-up supervisory actions if necessary, based on the results of the newly introduced risk assessment.
What do you think led to these changes? Is the real estate market, and that of home loans, overheating?
- This change in reporting comes after analyzing the figures for the first quarter. There is a very slight rise in some of the main indicators such as “Ratios between the size of the loan and the value of the collateral at the time of granting”, where an increase of 1% is measured from an average of 73% to 74%, or to say the most – simplified, this is the percentage that the bank lends to the borrower based on the market value of the property.
The debt burden in the first quarter of 2024 was observed to be spread over an average of 25.2 years, an increase from 2022, when the average maturity of newly assumed obligations was 24.3 years. It is important to note here that property prices have also increased in recent years, which makes borrowers reschedule their home loans as much as possible in order to have more – low monthly cost for servicing your obligation.
As for the “ratio between the amount of current debt service payments and the borrower's monthly income at the time of granting”, - measuring the ability of borrowers to service their obligations, is improving steadily in 2022, 2023. and the first quarter of 2024, which is due to the growth of incomes in recent years in the country.
It is normal, against the background of the growing volume of credit, when two of the main risk indicators rise, albeit minimally, for the regulatory body to give an indication to commercial banks, which in this case is done by changing the way of reporting.
Regarding the claim of overheating of the market, my opinion is that the majority of the participants in the market are people who need to buy a property, or those who want to buy a bigger or newer one. Speculative transactions have decreased considerably over the past year, which is an indication of market stability. Let's not forget that banks also keep mortgage interest rates at record lows, which also contributes to the dynamics in the sector.
How do you see the situation with the constantly growing volume of housing loans? Isn't this a prerequisite for problems in the banking system in the future.
- Undoubtedly, the volumes of newly granted loans have grown considerably in recent years, and this was reflected in the serious rise in real estate prices. Despite the increased activity of the credit market, the household sector in Bulgaria continues to be characterized by relatively low indebtedness. By the end of 2023, the total liabilities of households on loans amount to 23.7% of GDP, one of the lowest levels of the “household loans/GDP” ratio. among EU countries, where the average is over 40%. Also, banks lend extremely responsibly by not compromising with their basic requirements, which gives peace of mind that even if interest rates on current loans rise, they will continue to be serviced without any problems. Statistics show that only about 1.5% of all granted home loans are overdue, which is quite low as a percentage and speaks of a well-considered risk on the part of commercial banks.
What should we expect regarding interest rates, it has been rumored for several years that the era of higher interest rates is coming?
The tightening of monetary policy in the Eurozone had a relatively weak and slow impact, especially in the household segment. When pricing housing loans, the majority of banks use reference indices based on interest rates on deposits, which are kept at low levels in the conditions of high liquidity in the banking sector. Based on these circumstances, a serious rise in interest rates for already withdrawn loans is not expected anytime soon. My personal opinion is that at the end of the year, banks will grant loans to new customers on one idea - higher interest rates, but it won't be anything dramatic. I expect rates to be in the 2.5% to 3.0% range. Of course, I cannot commit to an exact prediction.
You can see detailed statistics on average property prices in Bulgaria by cities and neighborhoods HERE