OREANDA-NEWS. December 23, 2014. According to the SEB home purchasing power index, in the third quarter a person living in Tallinn and earning an average income was able to purchase 34 square metres of new living space, while in Vilnius and Riga the respective figures were 28 and 23.

The purchasing power of the residents of Tallinn, in the case of both new and secondary market apartments has been decreasing already since the end of 2012. In the third quarter of the current year, for an average salary it was possible to buy a standard apartment of around 50 square metres in Riga, 41 square metres in Tallinn and 40 square metres in Vilnius, which is around a square metre more in Riga and Vilnius and almost a square metre less in Tallinn than in the previous quarter.

The availability of housing has improved due to low interest rates and rising wages, in Tallinn the main reason for the decrease in purchasing power was a seasonal drop in incomes. The average interest rate during the quarter for new home loans was 2.24 in Lithuania, 2.80 in Estonia and 3.50 in Latvia.

When calculating SEB’s home purchasing power index, this time also the duration it takes to accumulate the first down payment of a home loan was taken into account. Accumulating the 10% down payment for a new 40 square metre apartment takes less than two years for a person living in Tallinn and 2.5 years in Riga and Vilnius. The calculation is based on the assumption that 30% of income is saved.

Triin Messimas, Development Manager of Private Loans at SEB noted that the availability of buying a new home is also affected, besides by income, interest rate and price of home, also by the size of the required down payment. In Latvia, in relation to a change in the legislation, banks have already raised the required down payment to 30%, meaning that for a person receiving an average income it would take at least seven to eight years to accumulate the sum they need.

The SEB housing purchasing power index shows the number of apartment square metres that can be bought on an average income and with a loan, without taking any excessive risks (with a loan expiry date of 25 years, down payment of 20 per cent, and loan payment of 30 per cent of the borrower’s income). Four factors are considered to influence the home loan market: standard apartment price, average income, consumer prices, and the average interest rate of new home loans. SEB has been calculating the housing purchasing power index for the Baltic States semi-annually (in the 1st and 3rd quarters) since the 3rd quarter of 2011.