Strong credit activity at historically low interest rates, rising salaries, and limited investment opportunities for household savings are the key factors driving up the housing market in Bulgaria, according to the latest “Economic Review, periodical issue of Bulgarian National Bank (BNB). Annual house price growth accelerated to 16.5% in the third quarter of 2024, up from 15.1% in the second. The highest growth rate was in Stara Zagora and Plovdiv.
In the third quarter of 2024 the price-to-rent ratio, which is often used as an indicator of undervalued or overvalued housing, continued to significantly exceed (by 45.4%) its long-term average, according to the BNB. According to the analysis, household decisions to purchase houses are determined by motives other than immediate financial profit through renting. Among the reasons can be mentioned expectations for continued price increases or perceiving housing as an asset for preserving value in the face of negative deposit interest rates. An assessment by the BNB model shows an increase in the affordability of housing.
Although this somewhat contradicts claims about a real estate bubble and strong inaccessibility of homes, other data from the BNB also show that at least for now there are no problems with mortgage lending. By the end of 2024, non-performing mortgage loans were only 0.44% of all granted loans. This is the lowest share among all types of bank loans. For comparison, overdue loans overall in the banking system are 1.8%, while corporate loans are 2.3%.
In the last year the annual growth of loans for businesses and households accelerated and reached 15% by the end of December, compared to 11% in December 2023. The dynamics are mainly due to household lending, according to the BNB (see the chart). The higher growth in residential loans at the end of the year is partly due to reclassification of consumer loans into residential loans, according to the Central Bank.
Results from the Credit Activity Survey conducted by the BNB on a quarterly basis signal that during the first three quarters of 2024, the main factors for the increase in demand for residential loans were households’ needs for funding the purchase of their first home, positive assessments of the macroeconomic environment and prospects for the housing market, as well as the offered levels of interest rates. The volume of new residential loans increased due to strong growth in property prices.
For business the main driver of growth was overdraft – 21% at the end of the year, compared to 6.6% in December 2023. The accelerated growth likely reflects demand for resources for stockpiling and securing working capital. There was a slowdown in the annual growth rate for ordinary non-overdraft loans. According to the BNB survey, there was a decrease in the need for financial resources for investment purposes in the third quarter. Results show eased standards for granting loans to small and medium-sized enterprises, no change for large corporate clients and consumer loans, and slight tightening of standards for mortgage loans. The main factors for tightening credit policy both for businesses and households are banks’ lower willingness to take risks and higher cost of financial resources. However, competition influences towards loosening credit policy – mainly for household loans.
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