The latest significant increase in residential loans in Bulgaria has led to various interpretations by economists and analysts.
Annual growth in residential loans reached nearly 27%, while consumer loans grew by 14%, according to Bulgarian National Bank (BNB) data at the end of June. In corporate lending volumes grew more modestly, by about 9% on an annual basis. In its latest Report on the banking system BNB noted that the increase in household incomes, combined with low real interest rates on mortgage loans, increases the affordability of housing. In the model used by the Central bank, this is reflected as an increase in the equilibrium price of properties.
Institute for Market Economics (IME), however, warns that banks “provide fuel for the appreciation of real estate and consumption growth.” According to economic experts, credit institutions are gradually becoming one of the main factors contributing to macroeconomic imbalances. House price growth in Bulgaria is second in the EU after Portugal, and if we look at the last four quarters, the annual growth rates in Bulgaria are the highest in the EU. Moreover, Bulgaria is among the top five EU countries in terms of retail sales growth. With the inevitable cooling of lending – even a halt in growth, without talking about contraction – an increasingly wide range of economic activities will have to go through an inevitable and painful correction, noted IME.
Annual house price growth in the first quarter was 15.1%, with a slight slowdown compared to the end of 2024. The appreciation was greater for older homes and less for new ones. BNB data reflects the entire country, with the fastest price growth in Ruse and Varna. Several factors contribute to the growth, note BNB experts: rising wages, strong credit activity at historically low levels of the Annual Percentage Rate (APR) on new mortgage loans, as well as limited investment and savings opportunities. Traditionally, the largest share of Bulgarian households’ savings is in deposits, but for several years now, interest rates on them have been low, close to zero, and with inflation, they become negative in real terms. At the end of June, household deposits increased by 11.2% to over BGN 93 billion.
For comparison, investment funds manage just over BGN 12 billion, including investments from institutional investors and households. For many, the only alternative to a deposit is buying property, as the appreciation of their value both in Bulgaria and at the European level reinforces the understanding that it is an asset that generates income.
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