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Housing Finance Market Overview
In Slovakia, housing finance is raised from (mortgage) banks, Bausparkassen and the State funds. In 2006, banks had a market share of 47 per cent, Bausparkassen of 42 per cent and the state funds of 11 per cent. Meanwhile, the rapid growth of the mortgage market will have resulted in a considerable gain in market share by the banks. From 2002 to 2007, the Slovak mortgage market expanded rapidly. The mortgage debt to GDP ratio increased from 3.9 per cent in 2002 to 11.9 per cent in 2007.
The Market from the Perspective of the Demand Side
The typical loan to value (LTV) ratio is 70 per cent, but a maximal LTV ratio of 85 per cent is possible. Most mortgage loans taken out are loans with a variable rate or with short-term fixed rates.
House Price Development
House prices rose fast from 2002 to the middle of 2008, with an average annual growth of almost 20 per cent. Yet, residential property prices dropped during the 3rd and 4th quarter of 2008.
Special Characteristics of the Market
Slovakia has a contractual savings system, the Bauspar system which is characterized by low interest rates on loans and a government interest premium paid on savings. It is offered by specialised credit institutions, the Bausparkassen. The government grants an interest premium on the amount saved (up to a set maximum). The actual size of the premium is readapted every year according to several criteria whereof the interest rates on the Slovakian capital markets are the most important (2009: 12.5 per cent)
Deposits are for the banks one main source and for the Bausparkassen the only source of funding for their mortgage market activities. Short-term deposits and current checking accounts continue to offer a stable, low cost source of funding for the banks and Bausparkassen. Banks also fund the lending activities through issuance of Covered Bonds. Outstanding Covered Bonds equalled to 5 per cent of all outstanding residential lending in 2007 but will gain fast in importance. Funding mortgage loans through Covered Bonds is legally constrained by a LTV limit of 70 per cent.