Obstacles to finance future demand for residential real
estateOlga Lielkalne20 October, 2015
1
Creditless recovery may pose risks to investment and medium- to
long-term growthSource: ECB, Lietuvos bankas
Mortgage lending, annual changes (%)
2
Unstable legal environment and still high credit risk (incl. bad
credit history) are considered to be the most important supply side
obstacles to household lendingScale from 0 to 5 (0 insignificant, 5
very important)Source: Latvijas Bankas survey of seven largest
credit institutions, August 2015
Banks view: main supply side obstacles to household lending
3
Insufficient earnings and savings, as well as inability to prove
an official source of income reduce demand for household loansBanks
view: main demand side obstacles to household lending
Scale from 0 to 5 (0 insignificant, 5 very important)Source:
Latvijas Bankas survey of seven largest credit institutions
4
Creditworthiness of households and housing affordability have
improved recentlyNet average monthly wage, annual changes
(%)Housing affordability index* (2010=100%)*Housing price index and
net average wage index ratio; inverse relationship with housing
affordabilitySource: Central Statistical Bureau of Latvia
5
however, the level of earnings matters mostDistribution of
household total monthly net income, 2013 (%)
Vulnerable households: income and savings are less than expenses
(annualized)Source: LB survey of household borrowers (2013),
EUROSTAT, Latvijas Banka
1225EURAverage income per monthfor solvent households
(2013)5%40000Households with average income of more than 1250 EUR
per month 126 000Housing loans already issued across all income
groups
6
More than a half of potential borrowers do not want to be
indebted or do not need loansDistribution of respondent replies
about current credit liabilities and reasons for assuming no credit
liabilities (% of all replies)
Source: Latvijas Bankas survey 2015
7
ConclusionsLending perspectives have improved recently, however
both loan demand and supply still remain wary.Unstable legal
environment, its shortcomings and still high credit risk are the
main supply side constraints for lending. Bad credit history
remains a legacy from the credit boom.Low savings and insufficient
own funds restrict demand for mortgage loans. Many people simply do
not want to be indebted.Creditworthy demand is limited, and
formalizing of the shadow economy is important for lending
recovery.
8
Last but not least: Is there a potential for rental market
growth?Distribution of population by tenure status, 2013 (% of
population)Source: EUROSTAT
9
Rental market has been showing a gradual growthDistribution of
population by tenure status, 2013 (% of population)Source:
EUROSTAT
10
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