Mortgage Bond Market Planned for Estonia

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The domestic property market in Estonia looks likely to be revolutionised by plans to create a mortgage bond market in the country.

Bloomberg has reported that the local unit of Stockholm-based Swedbank AB made the proposals with the aim of reducing borrowing costs and reviving the capital markets.

The plans would have a significant impact on the Estonian property market and although an official decision has yet to be made, the proposals are expected to be welcomed by the Estonian Banking Association.

Priit Perens, Swedbank chief executive officer, went on record as saying that: "The main reason to do this is to finance our activities more cheaply. In Sweden, there is a clear difference in prices of mortgage-backed bonds and senior unsecured bonds. It would definitely also be a suitable instrument to boost the local capital market.”

The Estonian Banking Association would have to agree to the measures before the legal steps needed to start trading bonds could be initiated.

Estonia is currently attracting foreign investors due to its relatively low levels of debt in both private and public sectors, which makes it particularly appealing to pension funds.

Mr Perens didn’t go into detail as to either the potential size of the market or when bonds may start to be offered, but Estonia’s economic performance in other areas bodes well for the plans.

Further statistics show that average wages in the country grew by 5.9% in Q4 2012 and real wages increased to 2.1% in Q4. The Wages and Salaries Statistics Survey revealed that unemployment is also decreasing, with the end of December 2012 showing an increase in numbers of those in work of 4.5% year on year.

Transferring money to invest in countries like Estonia means dealing with the international money markets and travel money exchange rates. It is worth bearing in mind that the rates offered by banks are often far less attractive than those gained by using a currency exchange specialist.

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