Sofia, Bulgaria – Despite the Bulgarian National Bank (BNB) implementing restrictive measures on mortgage lending, housing loans in Bulgaria continue to rise at a rapid pace.
According to BNB data, commercial banks approved 923 million leva in housing loans in November, marking an increase of nearly 5% from October and a 22.5% surge compared to the same month in 2023.
This follows a similar trend in October when loans totaled 882 million leva—an 8.7% rise from September and 32% higher than the previous year.
In an effort to curb excessive mortgage lending, the BNB introduced a set of measures in October 2024.
These include capping loan amounts at 85% of a property’s value, restricting borrowers’ monthly installments to no more than 50% of their income, and setting a maximum loan term of 30 years for home purchases.
The central bank has maintained that while the property market is not overheating, growing debt levels among borrowers, rising interest rates, and increasing property prices—particularly in Sofia—warrant caution.
Financial expert Desislava Nikolova noted that despite these restrictions, mortgage lending continues to grow. She highlighted 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%.
One of the most impactful BNB measures—the cap on monthly installments—was expected to exclude 23% of households from qualifying for credit. However, this has yet to result in a decline in housing loans.
The primary driver behind the sustained demand for housing loans is the exceptionally low interest rates. In November, the average interest rate on newly granted mortgages stood at 2.51%, slightly lower than the 2.58% recorded in November 2023.
Bulgaria now offers the second-cheapest mortgage rates in the European Union, trailing only Malta. Including fees and commissions, the annual percentage rate (APR) for housing loans in November averaged 2.82%.
However, while rates for new loans remain low, banks have gradually increased interest rates on existing mortgages over the past three years.
Nikolova pointed out that despite the low interest rates on loans, Bulgaria’s banking sector is enjoying record-high profits, largely due to persistently low savings interest rates.
The excess liquidity in the banking system enables commercial banks to continue issuing mortgages despite the BNB’s tightening measures.
She also noted that the central bank has limited tools to control lending, as Bulgaria operates under a currency board arrangement that ties the lev to the euro.
If mortgage lending continues to expand at the current pace, the BNB may consider raising minimum reserve requirements for banks. However, previous attempts to do so have had little impact on loan issuance.
With housing prices continuing to rise, particularly in Sofia, and mortgage demand remaining strong despite regulatory interventions, concerns about overvaluation and financial stability persist.
Experts warn that if the trend continues unchecked, further measures may be necessary to prevent excessive debt accumulation and potential risks to the broader economy.
This article was created using automation technology and was thoroughly edited and fact-checked by one of our editorial staff members