Although housing prices have stopped growing, the Bank of Lithuania says real estate in the country remains overpriced.
Since late last year, the real estate market in Lithuania has been stagnant. According to the Bank of Lithuania, buyers enthusiasm for new homes has cooled, as reflected in the three-fold fall in the number of reservations for unfinished properties.
The number of transactions involving old properties was also down by a quarter last year. The year 2021 was when homebuying peaked.
“People who buy for themselves are more or less keeping their plans. However, the number of homes bought for investment is falling. As interest rates rise, it is less profitable to buy to let,” says Eivilė Čipkutė, president of the Banking Association.
Housing prices in Lithuania stopped rising last October. However, the previous rises had been so steep that real estate remains overvalued, according to estimates by the central bank.
“If it used to be overvalued by about 6-7 percent, now we see that the overvaluation has decreased to 4 percent,” says Jokūbas Markevičius, head of the Bank of Lithuania’s Financial Stability Department. “This is a lot if you compare it with the last 15 years, but if you compare it with other European countries and with Lithuania’s long-term history, when it was 50 percent before the [2008] financial crisis, it is relatively low.”
Rising interest rates are what had the most effective cooling effect.
Repayments are rising for most of mortgage owners, since nine out of 10 people have taken out loans with variable interest rates.
Lithuanian debtors now pay the highest interest rates in the eurozone.
“They [interest rates] are not the highest in the EU, because there are countries like Hungary, Poland, the Czech Republic, which have their own monetary policies and where interest rates are close to double digits. In Lithuania, they are the highest in the euro area,” says Markevičius.
According to the Bank of Lithuania, with Euribor rising by 3 percent, a household with a 100,000-euro mortgage has seen its monthly loan repayments increase by about 160 euros.
Meanwhile, 200,000-euro loan costs 300 euros more per month to service.
Members of the Budget and Finance Committee in the Lithuanian parliament, Seimas, has asked the Bank of Lithuania to look into why interest rates are higher in Lithuania than in the rest of the eurozone.
The Banking Association says that despite rising interest rates, there is little risk of massive defaults.
“As the statistics show, the number of bad loans is at a record low,” according to Čipkutė, president of the Banking Association.
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