According to the latest available data from the Credit Registry of the Central Bank of Montenegro, as of December 31st, 2023, individuals were granted €593 million (gross principal) in housing loans. Compared to the end of 2021, the amount of these loans increased by €143 million or 31.74%, as reported by the Central Bank.
In the last two years, starting from 2022, apartment prices have dramatically increased, reaching almost unrealistic heights. In many places, square meter prices have risen by 100%, making it nearly impossible to buy an apartment with an average salary in Montenegro.
During the same period, from the end of 2021 to the end of 2023, interest rates did not rise significantly. According to the data from the CBCG, they increased by 0.44%.
- According to the data provided to the Credit Registry by banks, the average weighted nominal and effective interest rates on housing loans as of December 31st, 2021, were 4.59% and 5.23%, respectively, while according to the data provided to the Credit Registry by banks as of December 31st, 2023, the average weighted nominal and effective interest rates on housing loans were 5.14% and 5.67%, respectively – specified the Directorate for Communication of the Central Bank.
When it comes to interest rates, CBCG’s expectations are based on the forecasts of the European Central Bank (ECB). Namely, according to the latest ECB announcements, a slight decrease in interest rates is expected in the second half of the year. It is important to note that the economic prospects of the Montenegrin economy for the coming period are positive, and there is an observable intensification of Montenegro’s activities regarding EU integration. Therefore, a reduction in the perception of risk due to factors related to the domestic business environment can be expected, thus leading to a slight decrease in interest rates in the second half of the year. From the demand perspective, considering that a number of citizens already have housing loans and that part of the sales has been satisfied, despite the high current supply of apartments, a moderate impact of demand on interest rates can be expected. Of course, all of this is stated under the assumption that there will be no new major geopolitical turbulence during the year – responded from the CBCG.
They were also asked whether they consider the interest rates on housing loans to be high.
- Interest rates on housing loans, despite their increase, are still more favorable compared to other segments of lending. Thus, as of December 31st, 2023, the average weighted effective interest rate (AWEIR) on housing loans granted to individuals was 5.67%, while the AWEIR for all loans granted to individuals was 7.48%. The AWEIR for all loans to individuals at the bank system level as of December 31st, 2023, was 6.59%. The Central Bank is actively working on assessing interest rates on all categories of loans, along with analyzing the factors influencing their level. Additionally, the CBCG is enhancing communication with banks to understand the overall situation and define future steps. Regarding this issue, it should be noted that there are no simple and instant solutions, and international experience confirms that the practice of administratively limiting interest rates is not popular, as also indicated by the IMF during its latest visit to Montenegro – stated the CBCG.
Eight percent of loans are tied to Euribor
According to Central Bank data, the share of housing loans with variable interest rates in total housing loans to households is eight percent. In mid-2022, before the rise of the Euribor, the share of housing loans with variable interest rates was 35 percent.
- According to the data from the Credit Registry of the Central Bank, the total amount of housing loans granted to individuals with variable interest rates on June 30, 2022, was €172 million. As of December 31st, 2023, these loans amounted to €47 million. During the same period, the number of housing loan agreements granted to individuals with variable interest rates decreased from 5,625 to 2,389. This is the result of the Central Bank’s recommendation to commercial banks to prepare client protection programs due to the rise of the reference interest rate Euribor, which affected the increase of interest rates on these loans. The programs included the obligation to inform clients about all risks that, due to the new conditions in the market, are associated with loans with variable interest rates. Banks allowed clients who wished to do so to switch from variable to fixed interest rates under favorable conditions, without transfer costs and under the then-current market conditions – stated from the CBCG.
A large number of citizens in Montenegro found themselves in trouble when the Euribor began to rise, which is why, as shown by the CBCG data, they converted loans from variable to fixed interest rates.
