At 64% of the commercial value the average mortgage

By Leonidas Stergiou

The mortgage market may have been moving at an annual rate of over 30-40% over the last three years, however, disbursements are still low, as total one-year disbursements range from the mediocre to bad months of the past decade. . On the other hand, only 6% of new mortgages cover 100% or more of the commercial value.

The conservative profile of banks and borrowers is revealed by a study by the Bank of Greece. One of the main conclusions is that now the average financing rate is around 64% of the commercial value of the property, with the average monthly installment not exceeding 30% of the income for the majority of loans.

These figures become even more impressive when there is a sharp increase in the percentage of financing, to 75%, when it comes to buying a house for the purpose of renting and not owning. Also, in large amounts, the funding rate grows even more and reaches 80%. In addition, as time goes on, the percentage of bank financing increases, as competition intensifies, the banks explain.

The analysis of the Bank of Greece shows the following:

1. Loan amount: The average disbursement in 2021 was 73,200 euros, as the total disbursements amounted to 781.7 million euros, through 10,685 new loan agreements. According to the banks, the total amount, together with “Save” programs, is higher, at 884 million euros, increased by 48% compared to 2020. For 2022, the banks’ target for new mortgage disbursements is around 1.2 billion euros.

2. Funding percentage: The average financing rate is around 64% of the commercial value of the property. According to bank executives, this percentage started below 50% in 2019 and 2020 to reach close to 60% in early 2021 and close above 65% in late 2021 and early 2022. According to the bank of Greece, the financing rate for 25% of the loans is below 50%, but for 90% of the disbursements up to 80%.

3. Reason for borrowing: Most disbursements (97%) are intended for the purchase of residential real estate for home ownership, while only 3% concern loans for the purchase of residential real estate for rent.

4. Turnover to fixed interest rates: Loans disbursements with an initial fixed interest rate period of more than ten years represent 51% of all new loans, while disbursements of loans with an initial fixed interest rate period of less than or equal to one year (including floating rates) account for 32%.

5. Average duration: The average loan term at issue is 23.4 years. 43% of new loan agreements have a duration of up to 20 years, 19% have a duration of 20 to 25 years, while the remaining 38% have a duration of 25 to 35 years.

6. Installment and income: For 79.15% of 2021 disbursements, the cost of servicing the loan was less than 30% of the borrower’s annual income. For 18.41% of the loans the cost ranges between 30% and 50% of the income, while for 2.44% more than 50% of the income.

7. Risks: 75.1% of loans are low risk as they finance a small part of the commercial value and correspond to a small percentage of income (financing rate up to 80% and installment up to 30% of income. 23.1% are classified as medium risk and only 1.8% in high risk (financing rates over 90% and service costs over 30% of income).

8. Market shares: The market share of the four major banks amounts to 95.3% (fourth quarter 2021). The least important credit institutions and cooperative banks had a market share of 3.6% and 0.7% respectively. The market share of the branches of foreign credit institutions amounted to 0.4%.

The BoG analysis concludes that credit institutions are currently pursuing prudent lending practices with regard to loans secured by residential real estate.

Prospects for real estate purchase

According to the BoG, despite the instability of the last two years, as a result of the pandemic and the recent increase in energy costs, construction costs and the effects of the war in Ukraine, expectations for the Greek real estate market remain positive. On the one hand, the emerging very good course of tourism and on the other hand, the prospect of alleviating geopolitical instability in a reasonable period of time, maintain the positive medium-term and long-term expectations, which is reflected in the values ​​and the relatively low returns of real estate income.

Although the European Commission’s recommendation to restrict residence permits for investors (gold visa or gold passport) may have a partial effect on demand, it is estimated that investment interest will remain strong especially for certain privileged positions in the basin. Attica and in areas with tourist characteristics.

In addition, the BoG points out that prices are still significantly away from the historical high recorded before the fiscal crisis. Based on the apartment price index compiled by the Bank of Greece for the whole country, the highest price of the index was observed in 2008 (101.7 points) and then followed a steady downward trend, to record the lowest price in 2017. (59 points). Since then, the apartment price index has been steadily rising, reaching 72.1 points in 2021.

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