First decline in mortgage loans in years and a drastic reduction in loans where expenses exceed 50% of monthly income, according to the first report of the Bulgarian National Bank (BNB) since the measures introduced on October 1st. The new credit standards aim to limit mortgage lending. According to the data, the measures are already having an effect in the last quarter of 2024 – the decrease in newly granted loans compared to the second quarter is BGN 3 million (EUR 1.5 million), down to BGN 2.16 billion (EUR 1.1 million). This is a significant change in trend after three years of continuous growth in mortgage lending (see the chart).
According to the BNB, the credit quality of the household mortgage portfolio continues to improve. The volume of non-performing loans (NPL) again records a decline – they are BGN 285 million (EUR 145.7 million), just over 1% of loans at the end of 2024. These data include loans that are past due for less than 90 days and are not officially classified as non-performing, but are considered at risk. If only the loans overdue for more than 90 days are taken into account, their share in the overall portfolio is only 0.44%.
Last year, the BNB gave three main guidelines to commercial banks aimed at limiting the strong growth of mortgage lending to reduce the risks of loan default. One criterion is the income-to-debt ratio, with the expenses on all client credits, including credit cards, leasing, and other loans, not exceeding 50% of monthly income. The other two criteria are related to the value of credit collateral and the maximum repayment period. According to Central Bank data, the most significant effect is on the ratio between current debt servicing payments and the borrower’s monthly income (DSTI-O).
The share of loans with an income-to-expenses ratio above 50% has fallen to just 3.1% of all new loans. For comparison – in the third quarter, it was 24.6%. On average, the share of credit expenses relative to income has fallen by over 2 percentage points – from 39.1% to 36.8%. This means that under the new loans, less than 37% of borrowers’ monthly income on average goes towards repaying credit obligations.
The other two BNB measures did not cause changes in the market – the average value of the property used as collateral was 74% of the mortgage loan value. Repayment terms remain 25.2% on average.
However, there are exceptions to the BNB recommendations – a total of 421 loans from banks in Bulgaria have parameters above the minimum standards. This is only 4.2% of all new loans or 5.4% of their gross value. Most of them are loans where credit expenses are between 50% and 60% of income.
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