HOUSING LOANS RISK DRIVERS AND THEIR IMPACT ON BANKING AND RESIDENTIAL MARKET SUSTAINABILITY IN LATVIA

Housing loans play an important role in improving living condition in developed countries. In Latvia, however, residential mortgage volumes have declined throughout the post-crisis year's and were at the end of 2018 12% below end 2008 level, while the house price index ca. 25% below pre-crisis level. The main reasons for this are banks credit losses, which resulted in a revision of credit granting standards and a deteriorating in their availability. On the other hand, households have experienced increased uncertainty, both as a result of financial difficulties, experienced during the crisis years and political instability in the post-crisis years. It is therefore essential to identify the the true risk drivers and to analyse them. Based on existing researches in other countries, author has identified several dozen macro-economic indicators, such as the unemployment rate, wage growth, housing price index, etc. and micro factors such as the age of the borrower, total debt to income, loan-to-value, etc., have developed univariate and multivariate econometric models and have examined their statistical stability. Consequently, through consistent application, it is possible to take sound credit decisions, both in banks and by households, and to contribute to the sustainable development of the housing market.