Today's macroeconomic situation in Latvia signals stabilization and the issue concerning retail lending market, which is recovering along with economic growth, is becoming increasingly relevant. Swedbank is ready to resume active lending in the new economic reality. The bank possesses the most extensive experience both in lending and in dealing with crisis situations and supporting customers, which forms the foundation of borrowers’ financial stability in the long-run.

“The two last years' economic downturn has given us experience and lets us see objectively – who is willing and able to borrower today.The experience has also changed the habits of consumers who now make better thought out decisions.And that experience forms the foundation of safety for borrowers in the long-term,” says Oksana Sivokobiļska, the Head of Retail Banking and Board Member at Swedbank Latvia. “Swedbank has issued a total of 55,000 mortgage loans, and also following a deep recession 80% of all Swedbank’s borrowers meet their loan payments as they fall due and payable.For customers, whose solvency has been adversely affected by the economic crisis, we offer a variety of solutions – we have reduced the monthly payments during the period of hardships for over 8,000 mortgage borrowers”.

Habits become more prudent
The changed economic situation has prompted consumers to be more rational in their habits. A comparison of data on demand gathered from studies conducted in 2007 and in 2010 shows a substantial increase in the number of ‘reasonable’ consumers i.e. those who are able to strike a balance their monthly incomes and expenditures: from 35% in 2007 to 47% this year. Whereas the proportion of ‘spenders’, whose expenditures exceed their monthly income, has decreased: from 41% in 2007 to 36% this year. Also the number of ‘savers’ (with income often exceeding expenditures) has diminished: from 24% in 2007 to 18% this year.

People have become more rational, also in considering such large purchases as real estate. As shown by Swedbank studies* on demand among consumers and their plans concerning purchase of real estate, cars and other things, today residents most often (22%) consider the possibility of improving their existing home by refurbishing or renovating it (16% in 2008), whereas the purchase of a new real estate is considered by 8% of respondents (15% in 2008).

Responses concerning the demand suggest that at present the greater part (43%) of consumers is careful about borrowing, pointing out that they do not feel confident enough about their future income to undertake any long-term financial commitments. However, every tenth respondent (10%) indicated that there should be no problem to qualify for a home loan presently as their income is official and sufficiently high. 3% of respondents, in turn, admitted that their income is high enough but a part of it is being received unofficially, which makes it impossible for them to qualify for a loan now.

High availability of homes
Although the average price per one square meter of property has increased by an average of 10% since December 2009, home prices are still low enough to be within the reach of households on medium income. According to the home price affordability index**, the amount required for purchasing a medium-sized home in Latvia is equivalent to 4.5 annual salaries. In the European Union countries this index is normally 4 - 6 annual salaries. In Latvia and Estonia, the prices of apartments are currently more affordable than in Lithuania, however, expectedly, the prices will converge over time.

Information collected by Swedbank also implies prudence in selecting the type and location of prospective homes – people opt for homes matching their present, not future, financial capabilities. The respondents planning to purchase a home within the coming year said they would prefer a property in town (26%). Among those who plan to purchase a home in Riga, the most common preferred locations of property were Zolitude (preferred by 26% of respondents), Ciekurkalns (preferred by 21% of respondents) and downtown Riga or the ‘quiet’ centre of Riga (preferred by 13% of respondents). Such districts of Riga as Plavnieki and Imanta were indicated as the least sought-after locations of the prospective home (none of the respondents selected it). Also, a relatively small number of respondents plan to purchase a home in Mezciems and Mezpart (3% of those polled), or in Purvciems, Teika and Ziepniekkalns (5% of those polled). The majority of the prospective home buyers (37%) plan to purchase a single-family house, 18% - an apartment in a new development project, 16% - a Soviet-built apartment, and 13% - an apartment in a pre-war residential building.

Swedbank’s lending policy

“As customers' personal financial advisors, we want all our customers to remain in good financial health.Today, Swedbank lends to clients who have a reasonable need for a loan, have the capacity to receive a loan and are aware of a responsible borrowing”, underlines Dzintars Kalnins, Head of Retail Finance at Swedbank Latvia.

Loans are available to Swedbank customers who have:

• solid monthly income and are employed;
• education and working experience;
• Swedbank as their primary bank (salary or other income is transferred to an account with Swedbank);
• good credit history;
• total loan obligations will account for around up to 30% of the household's monthly income;
• savings and are able co-finance the purchase.

Borrowing is not recommended for those who:

• earn part of their income officially and a part - unofficially;
• need the bank to finance 100% of the purchase, have no money to invest towards the purchase;
• already have substantial loan obligations that exceed 30% of the household's monthly income;
• have a bad credit history (current obligations met with delays or in arrears);
• have an unbalanced cash flow (living from one salary to the next).