Despite the measures imposed by the Bulgarian National Bank (BNB), housing lending in Bulgaria continues to rise rapidly. In November, commercial banks approved housing loans totaling 923 million leva, marking an increase of nearly 5% from October and 22.5% compared to November 2023, according to BNB data. This follows a similar upward trend in October, with loans totaling 882 million leva—an 8.7% rise from September and 32% more than the same period in 2023.

Since October 2024, the BNB has introduced restrictions on mortgage lending. These include capping the loan amount to 85% of the property value, ensuring that the borrower's monthly installment does not exceed 50% of their income, and limiting the loan term to 30 years for home purchases. These measures aim to reduce the rapid growth of housing loans, which have seen consistent double-digit increases in recent years. While the BNB does not believe the property market is overheating, they have expressed concerns about the growing debt levels among borrowers, rising interest rates, and increasing property prices, especially in Sofia, where experts note signs of overvaluation.

Financial expert Desislava Nikolova highlighted that despite the BNB’s restrictive measures, housing lending continues to rise. She noted that the average loan amount has increased by 17%, driven by rising property prices, while the number of loans granted has only grown by 7%. The most significant of the BNB's measures is the restriction on monthly installments, which the central bank expected would exclude 23% of households seeking credit. However, this has not yet resulted in a decrease in housing lending, she observed.

The continued demand for housing loans is being fueled by the exceptionally low interest rates available. In November, the average interest rate on newly granted mortgage loans was 2.51%, slightly lower than the previous year's 2.58%. Bulgaria now offers the cheapest mortgages in the EU, after Malta. Including fees and commissions, the annual percentage rate (APR) on housing loans for November averaged 2.82%. However, while interest rates for new loans remain low, banks have started to slightly increase rates for existing mortgages over the past three years.

Nikolova pointed out that, despite the low interest rates on loans, the banking sector is reporting high profits due to low savings interest rates. This excess liquidity allows banks to continue granting loans. However, she noted that the BNB has limited tools to manage lending, as Bulgaria operates under a currency board. If the situation worsens, the BNB may consider increasing the minimum required reserves, though previous attempts to do so in the past had little effect on lending levels.

Sources:

• Sega
• econ.bg