Although consumers, depending on their needs, mostly opt for either housing or non-housing loans (largely the so-called general-purpose cash loans), some borrowers take out both types of loans in parallel. As loans to the latter are substantially more risky, a rise in the number of borrowers who opt for both housing and non-housing loans in parallel can be an early signal of changes in risks to financial stability. In 2024, 18% of borrowers took out both housing and non-housing loans at the same time. This is an increase by 3 percentage points from the year before, and is also the highest level in the four-year period for which data are available. These borrowers largely face higher debt service-to-income (DSTI) and loan-to-value (LTV) ratios and their loans have longer maturities. They also have lower income, which makes them vulnerable to potential adverse shocks. The econometric analysis has shown that housing loans held by borrowers who took out both types of loans in parallel were about 3.5 times more likely to deteriorate in the period of three years than those from borrowers who had no non-housing loans in parallel. This was true even when the impact of income and indebtedness on the probability of default was eliminated.
Housing and non-housing loans differ in a number of characteristics, which is also reflected in the risk profile of borrowers. Taking out a housing loan is usually the most important financial decision of a household. Housing loans mostly have relatively high amounts and are repaid over a very long period of time. In addition to housing needs, households also use them to finance the accumulation of assets. The main residence usually accounts for the bulk of household assets and serves as collateral for the loan. Like any investment, the purchase of a residential property is risky – real estate prices fluctuate, loan costs can change, and consumers can become distressed, e.g. they can face unplanned costs or lose a portion of income. This is why banks rigorously check their clients’ creditworthiness and apply relatively restrictive credit standards for housing loans. As a result of this strict approach to assessing risk, interest rates on housing loans are relatively low. On the other hand, non-housing loans[1], most notably general-purpose cash loans, tend to involve substantially smaller amounts than housing loans, have shorter maturities and require no collateral. Banks are usually willing to grant such loans also to somewhat riskier clients, offsetting higher risk by offering significantly higher interest rates than the interest rates on housing loans.
Changes in borrowing patterns that lead to an increase in the number of borrowers taking out both non-housing and housing loans at the same time can provide useful information about the evolution of risks to financial stability. In recent years, slightly more than 16% of borrowers of housing loans, on average, also simultaneously took out non-housing loans[2], which constitutes a minor share of borrowers. The share decreased in 2022 and 2023, reaching its lowest level in the past four years, at around 15%. However, it rebounded in 2024 and reached almost 18%. In most cases, non-housing loans were disbursed in either the same month as housing loans or immediately after the disbursement of housing loans (Figure 1), which may indicate that non-housing loans were used to cover the costs related to the purchase and renovation of the property. However, roughly a third of non-housing loans have been disbursed before housing loans, which suggests that these funds are possibly also used to finance their own participation in the purchase of residential real estate. Almost 80% of housing loan borrowers acquired real estate for their own dwelling purposes, including borrowers who took out both types of loans in parallel. Furthermore, borrowers with parallel loans predominantly took out such loans at the same bank (Figure 2). By opting for a bank that is already well aware of their financial situation, consumers avoid possible additional costs and uncertainty. However, the number of borrowers opting for another bank has been increasing. This may be the result of lower interest rates, but also higher risk tolerance of the bank at which borrowers take out non-housing loans.
Figure 1 The share of borrowers that took out housing and non-housing loans in parallel went up in 2024
Note: Borrowing both types of loans means a situation where a housing loan borrower has also been disbursed a non-housing loan in the period of six months before or after the disbursement of the housing loan.
Source: CNB (consumer lending standards).
Figure 2 Slightly more than 70% of borrowers took out both types of loans in the same bank
Note: Borrowing both types of loans means a situation where a housing loan borrower has also been disbursed a non-housing loan in the period of six months before or after the disbursement of the housing loan.
Source: CNB (consumer lending standards).
Borrowers taking out both housing and non-housing loans at the same time have weaker creditworthiness and are more indebted, on average. The average housing loan principal is only slightly higher for the group of borrowers with housing loans only and stands at EUR 110 thousand, relative to EUR 107 thousand for borrowers who take out non-housing loans in parallel. However, their income averages EUR 3,800[3], around EUR 600 more than the average income of borrowers who take out non-housing loans in parallel. As regards the latter, the almost equal amount of principal and their lower income is offset by longer maturities. Thus, the average maturity of housing loans disbursed to borrowers with both types of loans stood at 24.6 years in 2024, while the average maturity of loans granted to borrowers who took out only a housing loan was almost two years shorter (Table 1). However, longer average maturity cannot fully compensate for income discrepancies; thus, the average debt service-to-income (DSTI) ratio for borrowers with both types of loans stands at 44%, while being 4 percentage points lower for borrowers of housing loans only. In addition, 45% of borrowers with both types of loans face a DSTI ratio above 45%, while this share is 9 percentage points lower for borrowers with housing loans only (36% of these borrowers face an elevated DSTI ratio). In addition, the amounts of their housing loans are, on average, higher than the property value (LTV) by around 7 percentage points (Table 1).
Table 1 Lending indicators for borrowers taking out housing and cash loans in parallel
Note: The table shows data for borrowers to whom housing loans were disbursed in 2024, and to whom non-housing loans were disbursed six months before or after the disbursement of housing loans. In certain cases, borrower's income can also include co-borrower’s income due to the definition of borrower’s income in the reporting system on consumer lending standards and household deposits.
Source: CNB (consumer lending standards).
Figure 3 Housing loans taken out in parallel with non-housing loans are more likely to deteriorate
Note: "Housing and non-housing loans" refer to consumers to whom non-housing loans were disbursed six months before or after the disbursement of housing loans. “Housing loans only” refer to consumers who did not take out a non-housing loan in parallel with a housing loan. The colour of the line on the chart shows the year when a housing loan was disbursed, while the non-performing loan ratio (NPLR) has been calculated based on data contained in GK record in the reporting system for consumer lending standards (UKPO) as at 31 December 2024.
Source: CNB (consumer lending standards).
Housing loans taken out by borrowers in parallel with non-housing loans are more prone to deterioration, when the impact of income and indebtedness on the probability of default is controlled for. At end-2024, the share of non-performing loans in housing loans disbursed to borrowers who took out a housing loan only in the cohort of loans granted in 2021 averaged at slightly below 0.5%. On the other hand, in the segment of housing loans taken out in parallel with non-housing loans, the average share of non-performing loans was almost three times higher (by around 1.3%) (Figure 3). The econometric analysis[4] has shown that housing loans granted at higher interest rates and with longer maturities and loans disbursed to borrowers with lower income are more likely to deteriorate. Even if the differences in income and indebtedness are taken into account, housing loans disbursed to borrowers who took out non-housing loans at the same time are still around 3.5 times more likely to deteriorate. This underlines the importance of factors not included in the model, such as other assets, particularly liquid assets, which might explain faster deterioration in the case of borrowers who have taken both types of loans in parallel. The effect of these factors on the probability of default might be examined in future research.
- Non-housing loans are loans to consumers that do not include housing loans, credit card loans and overdrafts. ↑
- For the purpose of the analysis, parallel borrowing means a situation where a non-housing loan was disbursed six months before or after the disbursement of the housing loan. Results remained almost the same when the time span was changed from six months to three or nine months. ↑
- In some cases, borrower's income can also include co-borrower’s income due to the definition of borrower’s income in the reporting system on consumer lending standards and household deposits. ↑
- The analysis was carried out on a sample of housing loans disbursed in the period from 2021 to 2024. Parallel lending is defined as the case in which a non-housing loan was disbursed to the borrower six months before or after the disbursement of the housing loan. Logistic regression model (Logit) was defined, with the dependent variable being a binary variable indicating whether or not a housing loan was classified as a non-performing loan at end-2024. Independent variables in the model include DSTI (in the case of parallel loans, the DSTI of the loan that was last granted is shown, in order to capture the total cost of debt servicing), the nominal interest rate on the housing loan, the original maturity of the housing loan and the borrower's income. In some cases, borrower's income can also include co-borrower’s income due to the definition of borrower’s income in the reporting system on consumer lending standards and household deposits, given that the data used in the econometric analysis are derived from the mentioned reporting system.