According to the SEB housing purchasing power index, in the last quarter of 2013 the accessibility of housing improved in both Vilnius and Riga but declined in Tallinn.
In the last quarter of 2013, a resident of Riga on an average income could buy an apartment of 50.5 square metres, 0.9 square metres more than in late 2012. In Vilnius, a person on an average income could buy an apartment of 40.3 square metres, that is, one that is a square metre larger than a year ago. In late 2013, however, Tallinn saw the housing purchasing power index decline by 1.6 square metres compared to the 3rd quarter and by as much as 11 square metres – to 42.4 square metres – year on year.
Thus, in late 2013 a resident of Tallinn on an average income could purchase a standard apartment of 42.4 square metres without taking on excessive risks or loan obligations. This is 8.1 square metres less than the purchasing power of a resident of Riga but 2.1 square metres more than that of a resident of Vilnius.
In the last quarter of 2013, the average interest rate of new home loans was 2.37 per cent in Lithuania, 2.98 per cent in Estonia and 3.41 per cent in Latvia.
Triin Messimas, Development Manager of Private Loans at SEB, explained that a decline in interest rates and a growth in real wages made real estate more accessible in Riga and Vilnius despite the fact that real estate prices rose slightly. In Tallinn, however, growth in mean real wages could not outweigh the rise in prices of apartments or a slight increase in interest rates.
The SEB housing purchasing power index shows the number of apartment square metres that could be bought on an average income and with a loan, without taking any excessive risks (with a loan expiry date of 25 years, down payment of 20 per cent, and loan payment of 30 per cent of the borrower’s income). Four factors are considered to influence the home loan market: standard apartment price, average income, consumer prices, and the average interest rate of new home loans. SEB has been calculating the housing purchasing power index for the Baltic States semi-annually (in the 1st and 3rd quarters) since the 3rd quarter of 2011.