Credit Expansion – The Key Factor of Housing Market Development

Abstract

In recent years, the banking sector in Bulgaria has entered a phase of accelerated credit expansion, supported by record-low interest rates, high liquidity in commercial banks, and increasing demand for financing from both households and businesses. This trend is particularly pronounced in the mortgage lending segment, where the total volume of loans has been growing at double-digit annual rates. In combination with rapidly rising household incomes, low unemployment, high inflation, significant internal migration to major cities, and the limited development of the domestic capital market, these factors have generated a strong surge in housing demand and an unprecedented increase in residential property prices.

The purpose of this study is to analyze data on mortgage lending in Bulgaria over the past 20 years and to identify the main factors influencing its dynamics. By examining the volume of housing loans granted to households by commercial banks, the research aims to measure the impact of credit expansion on the country’s housing market. The study will also provide arguments demonstrating why this excessive lending at unsustainably low interest rates poses serious risks for both borrowers and the whole financial system.