Riga, March 11 (LETA) - Housing lending in Latvia is growing, but the overall market activity is still one of the lowest in the euro area, which points to structural obstacles hindering its development, Edgars Surgofts, Head of Bigbank's Latvian branch, told LETA.

Citing statistics from the Bank of Latvia, Surgofts said that the amount of newly issued mortgage loans, excluding revised or refinanced loans, increased by 40 percent last year - from EUR 0.89 billion in 2024 to EUR 1.25 billion in 2025.

Surgofts explained that the growth was boosted by rising wages and savings, as well as the European Central Bank's decisions to cut interest rates, improving the financial situation of households and allowing deferred transactions.

However, Latvia is lagging significantly behind the euro area and neighboring countries in housing lending, Surgofts pointed out. According to the Bank of Latvia 2025 affordability survey, Latvia is the second largest lender to households in the euro area, behind only Greece.

Surgofts pointed out that in the second quarter of 2025, the balance of housing loans to households was less than 13 percent of gross domestic product (GDP), while the euro area average is almost three times higher. In Lithuania, it is 17 percent of GDP, while in Estonia it is 31 percent.

"When lending lags behind, it signals structural problems - insufficient housing affordability, cautious banking conditions or low solvency - that hold back growth in the long run. As incomes and savings grow, other obstacles to lending need to be reduced," said the head of Bigbank's Latvian branch.

He cited three main obstacles - the generic processing of applications, the lack of quality housing and the mismatch between prices and purchasing power.

A generalized application process means a standardized approach, where decisions are often based on automated criteria and do not take regional specificities sufficiently into account. If property values are low, as is often the case in certain regions, if there is less economic activity in the region or if incomes have temporarily fallen, the risk of not being granted a loan because the property does not meet the banks' "standard" criteria increases, explains Surgofts.

He pointed out that the Latvian mortgage market is dominated by the big four banks, which can promote a similar approach to assessing risk, but there are other players who offer different assessments. However, the focus will remain on gaining confidence in the long-term solvency of the client.

He pointed out that a more flexible approach could reduce regional inequalities. Almost a quarter, or 24 percent, of the bank's new mortgage lending in 2025 will be in the regions. Of these, 38 percent are in Kurzeme, 29 percent in Zemgale, 21 percent in Vidzeme and the least - 12 percent - in Latgale. Demand in the regions has not disappeared - it simply does not always meet the standards of universal banks, says Surgofts.

The second factor is the structure of supply, says Surgofts. Real estate agency Latio, in its 2025 housing market report, said that there is activity in the regional real estate market, but it is limited by a shortage of certain types of housing - especially quality apartments. Buyers are increasingly assessing energy efficiency, maintenance costs and the need for renovation, preferring properties that do not require significant additional investment.

The third factor is the imbalance between prices and purchasing power. According to Latio data, in Riga in 2025 the supply was dominated by new apartments, but the share of transactions in them lagged behind. About 17 percent of sellers, including developers of new projects, are offering properties at prices that do not match buyers' means. Nearly 40 percent of supply is new-build on the first-time market, but the number of transactions is relatively low.

Raul Eamets, Chief Economist at Bigbank, pointed out that the shortage of quality housing is closely linked to regional inequalities. The most economically active population is concentrated in Riga, where incomes are higher and there are more new projects. In the regions, new housing is scarce and often priced out of line with local incomes, while construction costs are the same everywhere. This limits the development of quality supply outside the capital.

Eamets adds that also in Estonia, although lending rates are higher, transactions in new projects account for a relatively small share, with most activity taking place in the secondary market.

For Latvia to catch up with the eurozone average, a balance is needed between bank access, household solvency and market supply, according to Surgofts.

Estonian bank Bigbank made a profit of EUr 37.9 million last year, up 17 percent year-on-year.

Bigbank is an Estonian bank focused on loans and deposits to individuals and businesses. In addition to its Estonian operations, Bigbank has branches in Finland, Sweden, Latvia, Lithuania and Bulgaria, and offers products as cross-border services in Austria, Germany and the Netherlands.