TALLINN - Peep Sooman, marketing manager of Pindi Kinnisvara, a real estate group, warned that the rapid growth in home loans in Estonia might soon end as interest rates start to climb.
Sooman said that Estonians, who for the last two years have been taking advantage of the low rates and borrowing as never before, should be aware that the Euribor interest rate may soon start rising from its current level of 2 percent.
As he explained, since 1987 the average six-month Euribor rate has been as high as 5.28 percent.
In the next five years, Euribor could go up as high as 7 percent, he said.
If that happens, people will see a sharp rise in their monthly loan repayments, warned the real estate manager.
But there is no doubt that Estonians have taken full advantage of low interest rates. If individuals borrowed 6 billion kroons (387 million euros) at the beginning of 2002, the same figure currently stands at over 12 billion kroons, according to Sooman.
People have also begun to borrow more. If at the beginning of 2002 banks were doling out slightly less than 300 million kroons per month, banks are now issuing 800 million kroons in housing loans per month.
Coupled with increasing incomes and a rapid fall in interest rates, this has pushed housing prices up.
Wages have increased in average by 10 percent per year, which means that there still are a large number of people who can afford to borrow on the home mortgage market.