Estonian central bank plans limits on new home loans

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TALLINN Oct 29 Estonia's central bank said on Wednesday that is it planning new curbs on home loans from January 2015 and might take further measures if needed. The statement follows a Swedish central bank decision to put loan-to-value caps on mortgage lending. Estonia's banking sector is more than 90 percent dominated by Nordic groups, such as SEB, Swedbank and Nordea."To reduce the risk of lending booms in the future, Eesti Pank plans to impose three limits for banks on new housing loans as a preventative measure," the central bank said in a statement."Rises in real estate prices and growth in housing loans have continued in Sweden and the risks this poses to Estonian banks remain," it added.

The bank said it would put an 85 percent limit on the loan-to-value (LTV) ratio of new housing loans, a 50 percent limit on the debt service-to-income (DSTI) ratio and a 30-year limit on the maximum maturity of loans.

"The levels planned for the limits are based on the current conditions for housing loans issued by banks so the requirements set by Eesti Pank will not make the conditions for issuing housing loans tighter than they currently are," the bank said."If the risks around housing loans increased, Eesti Pank would be able to set stricter requirements," the bank said.

Sweden has already introduced loan-to-value caps on mortgage lending while raising risk weights for banks regarding such loans as it seeks to temper a lending boom that has lifted Swedish household indebtedness to one of the highest levels in Europe. With Riksbank interest rates now at zero, policy makers are discussing further measures such as requirements to pay down the principal on new home loans.

Even if you’re not a first-time buyer and think you know the ins and outs of buying a home, we’re willing to bet a steak dinner that the market has changed drastically since you’ve been in the game.