In recent years, the real estate market has undergone significant changes. One of the emerging trends is the increase in small-ticket mortgages, which are becoming increasingly popular among buyers. This segment, often referred to as “small-ticket” loans, includes real estate loans for properties that do not exceed a certain amount, allowing people with limited budgets to become homeowners. According to experts from ASK, a significant surge in this segment is expected in the coming years.
The Essence of Small-Ticket Mortgages
Small-ticket mortgages are loans provided for the purchase of properties typically priced under €200,000. These can include apartments in suburban areas or small houses. Such loans help reduce the financial burden on the borrower, as the loan amount and interest rates are typically much lower compared to standard mortgages for more expensive properties.
Reasons Behind the Growth of Small-Ticket Mortgages
Several factors are contributing to the growth of this mortgage segment:
1. Rising Demand for Affordable Housing
With increasing property prices in large cities and the overall rise in living costs, buying a home has become unaffordable for many people. This is especially true for younger individuals and those with lower incomes. Small-ticket mortgages provide a viable alternative to renting, boosting their popularity.
2. Flexibility and Accessibility
Small-ticket mortgages offer lower entry barriers for borrowers with smaller incomes, making homeownership accessible. Financial institutions can offer more flexible terms, such as lower down payments or extended repayment periods, making home purchases more affordable.
3. Government Support
In many countries, government programs are being introduced to stimulate demand for affordable housing. Some of these programs help reduce the interest rates on small-ticket loans or provide subsidies for the down payment. These measures significantly boost the popularity of small-ticket mortgages.
4. Growing Interest in Suburban and Less Developed Areas
Many buyers, seeking more affordable options, are increasingly focusing on properties in suburban or less developed areas. With lower property prices in these locations, small-ticket mortgages become accessible for buyers who can’t afford properties in major city centers.
Advantages and Risks of Small-Ticket Mortgages
As with any financial tool, small-ticket mortgages come with both advantages and risks. Let’s take a look at the main benefits and potential downsides.
Advantages:
- Lower Down Payments: The down payment for small-ticket mortgages is typically much lower, making them accessible to a wider range of borrowers.
- Access for Younger Buyers and Families: Younger people and families who cannot afford traditional mortgage loans can use small-ticket loans to purchase their own homes.
- Flexible Terms: Lenders may offer more favorable terms, such as extended repayment periods or lower monthly payments, for small-ticket mortgages.
Risks:
- Higher Interest Rates: In some cases, the interest rate for small-ticket mortgages may be higher than for traditional loans on larger properties.
- Risk of Overpayment: If the property value decreases after purchase, the borrower may face financial difficulties when repaying the loan.
- Limited Property Selection: Borrowers seeking small-ticket mortgages may have fewer options when it comes to choosing properties, as many homes may exceed the maximum loan amount.
ASK’s Forecast for the Future
ASK predicts that the demand for small-ticket mortgages will continue to grow in the coming years, driven by several factors:
- Increase in the number of young families and individuals interested in homeownership.
- Ongoing rise in property prices in large cities, making affordable housing increasingly in demand.
- Active government support aimed at improving housing accessibility for a wider population.
ASK expects that, over the next three years, the share of small-ticket mortgages in the total mortgage market could increase by 15-20%, especially in countries like Germany, France, and the UK. The typical value of properties eligible for these loans in Europe is expected to be between €150,000 and €200,000, which perfectly fits the target audience for small-ticket mortgages.
Expected Rates and Terms
Interest rates for small-ticket mortgages vary depending on the country and financial institution. Typically, they range from 2.5% to 4.5% per year. In countries with lower interest rates, such as Germany, the rates may be even lower, making these loans more attractive to borrowers.
However, it’s important to note that the interest rate may increase for less creditworthy borrowers, which makes it crucial to carefully assess the loan offers.
Conclusion
ASK’s initiative to focus on the growth of small-ticket mortgages addresses the growing demand for affordable housing. Small-ticket mortgages, becoming more popular, offer an opportunity for more people to become homeowners without committing to long-term, large loans for more expensive properties.
However, it’s important to recognize the risks, such as higher interest rates and limited property selection. Nevertheless, ASK’s forecasts confirm the growing interest in this mortgage segment, making small-ticket loans a desirable and in-demand option amid rising property prices and changing economic conditions across Europe.
