Slower Growth in Mortgage Lending and the National Bank’s Strategy: An Attempt to Stabilize the Market

Data from Georgia’s banking sector for January 2025 reveals a sharp slowdown in mortgage lending. According to the National Bank of Georgia, commercial banks issued 246 million GEL in mortgage loans, reflecting only a 2% increase compared to the same period last year. However, in absolute numbers, the decline in mortgage issuance is evident—while 3,300 mortgage loans were granted in January 2024, this number fell to 3,000 in January 2025. This suggests that either Georgians are struggling to finance real estate purchases, or demand in the real estate market itself has weakened.

Against this backdrop, the National Bank was forced to ease regulations governing mortgage lending. Specifically, the minimum down payment requirement was lowered—previously, borrowers had to cover 15% of the property’s value, but now they can pay just 10%, with the remaining 90% financed by the bank. This measure aims to boost demand and improve loan accessibility, but its long-term impact remains uncertain. The National Bank has stated that this policy is temporary, and the timeline for its continuation is currently unknown.

Changes in Interest Rates and Market Activity

Mortgage interest rates declined slightly in January—according to the National Bank, the average interest rate on GEL-denominated mortgage loans was 11.79%, marking a 0.43 percentage point decrease year-over-year. However, despite the slowdown in borrowing costs, market activity continues to decline. This could be due to macro-economic factors as well as reduced purchasing power among consumers.

A key indicator of mortgage demand is the volume of real estate transactions. According to Colliers Georgia, 2,892 residential property transactions were recorded in Tbilisi in January 2025, reflecting a 7.5% decline compared to January 2024. However, despite fewer transactions, the total value of real estate sales increased, reaching $208 million, representing a 2.9% annual growth. This trend indicates that real estate prices are still rising, further exacerbating affordability issues for potential buyers.

Balancing Financial Stability and Market Accessibility

For Georgia, where mortgage interest rates have historically been high, and purchasing power remains relatively low, the National Bank’s regulatory easing is a positive short-term signal. However, in the long run, such measures could introduce risks, particularly if increased lending leads to higher credit risks for banks.

Additionally, if housing prices continue to rise, property acquisition may become even more challenging for consumers, effectively neutralizing the benefits of improved loan accessibility.

Conclusion

Georgia’s real estate and banking sectors are in a transitional phase, where the National Bank is attempting to strike a balance between economic stability and mortgage accessibility. If regulatory easing succeeds, housing demand may increase, but this process requires careful monitoring and a thorough assessment of long-term macroeconomic risks.