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 "In the second quarter, housing affordability in Riga and Vilnius improved due to the increase of real income and reduced interest rates on loans. Affordability of soviet-era and new apartment buildings improved in both cities, while in Tallinn the HAI increased for older apartments and decreased for apartments in new projects," the bank indicated.

In the second quarter of 2016, the HAI for soviet-era apartments in Riga increased to 52.2 square meters, 0.2 square meters more than in the first quarter and 0.3 square meters more than in the second quarter of 2015. The HAI for old apartments in Vilnius rose by 0.1 square meters to 41.3 square meters, while Tallinn recorded the steepest rise of the index - by 0.7 square meters to 42.8 square meters in the second quarter, compared to the second quarter of 2015.

SEB Banka socioeconomics expert Edmunds Rudzitis credits the index growth to the continually increasing employee income, improving purchasing power of residents and the decline of interest rates on loans. While interest on mortgages dropped by 0.2 pp in Latvia and by 0.05 pp in Estonia, in Lithuania it rose by 0.03 pp as compared to the final quarter of 2015.

In Riga the HAI for new apartment buildings grew 1.9 square meters to 27.9 square meters, in Vilnius it increased by 0.3 square meters to 29.5 square meters, while in Tallinn the index declined 0.8 square meters to 37 square meters due to the rapid increase of prices for new apartment buildings.

But despite the decline, apartment buildings in Tallinn still are the most affordable to residents. That is proven with not just the HAI value, but also the time needed to save for a down payment.

For example, in order to save enough money for 20% down payment, it takes 40.9 months for a resident of Tallinn, 49 months for a resident of Riga and 56.5 months for a resident of Vilnius, according to the bank's data.

The SEB Housing Affordability Index reflects the maximum amount of square meters affordable by an employee with average income who borrows from the bank and doesn't take on too much risk (loan payment is due 25 years, down payment - 20%, with 30% of borrower income diverted to loan payments).

SEB Banka is the fourth biggest bank in Latvia by assets.