BoA: 44% of first home loans in Euro, above loan-to-value limit

2025-10-01 13:07:00, Ekonomi CNA

In May of this year, the Supervisory Council of the Bank of Albania imposed several restrictions on the standards for new lending for the purchase of housing.

According to the Bank of Albania, this decision aimed to maintain financial stability, in the face of the rapid increase in housing prices, by preserving the solvency of borrowers and the quality of the banking sector's exposures to the real estate market.

The two indicators selected were that of loan to value, in disbursement, and that of debt service to income, in disbursement.

The loan-to-value ceiling in Lek is 85% for the first home and 80% for the second home, while in foreign currency it is 75% for the first home and 70% for the second home.

While the debt service to income ratio for loans in Lek is at the level of 40% for the first home and 35% for the second home. In foreign currency, the ceiling level will be 35% for the first home and 30% for the second home.

The Bank of Albania explains that the values ??of the maximum limits set were calibrated by considering the data of banks collected in a special way, and by specifying them according to the type of currency and the purpose of use of the property. From the analysis carried out until the end of the first half of 2025 on the data reported by banks until December 2024, it results that the average value of the indicators that are subject to the measures remains below the upper limit for most of them.

For residential real estate loans in Lek taken out for the purchase of a first home, the loan-to-value ratios at disbursement were 71%, while the limit set by the Bank of Albania was 85%. Meanwhile, the debt service-to-income ratio at disbursement averaged 35%, while the limit set by the Bank of Albania was 40%.

For the same indicators for second homes purchased with loans in Euro, the loan-to-value ratio at disbursement was estimated at 83%, significantly above the maximum limit of 70% set by the Bank of Albania. Meanwhile, the other indicator of debt service to income, at disbursement, was at 19%, significantly below the limit of 30% set by the Bank of Albania.

By analyzing these indicators, it can be concluded that in the case of second homes, banks undertake to finance a larger part of the purchase price, but, on the other hand, the loan installment is a smaller part compared to the borrowers' income. This shows that, in general, these loans are granted to borrowers with higher incomes, who want to buy a second property, for investment purposes.

The Bank of Albania underlines that it should be taken into account that the measures apply to each individual loan, which means that their practical effect depends on the distribution of the loan portfolio, by type for each interval of the indicator values.

For illustration, if the measures were applied to loans granted in the second half of 2024 for the purchase of a first home in Lek and Euro, it would result in 21% of loans in Lek and 44% of loans in Euro being classified above the limit set for the loan-to-value ratio, in disbursement.

Meanwhile, 27% of loans in Lek and 37% of loans in Euro would be classified above the limit set for the debt service to income ratio, in disbursement.

These figures show that the effect of the new measures on lending for housing purchases will potentially be considerable, even in the case of purchasing a first home.

The decision has started to be implemented by banks for new residential real estate loans disbursed since July 1, 2025, while banks may apply exemption quotas for each of the indicators on the condition that in total, the value of the exempted loans does not exceed 15% of the volume of new loans that have been approved and disbursed (even partially) during the relevant quarter.

Home loans granted by the Albanian banking sector have reached new records in the first half of this year. According to statistics from the Bank of Albania, in six months the banking sector granted 36.2 billion lek in new home loans, an increase of 31.6% compared to the same period a year ago.

Lending has slowed somewhat after the entry into force of the Bank of Albania's measures, but continues to grow. For the July-August period, new home loans reached 9 billion lek, up 11% compared to the same two-month period a year ago./ Monitor