Mortgage lending in Azerbaijan has been growing since 2020 – but that growth is now slowing sharply.
According to the Central Bank’s Financial Stability Report for the first half of 2025, the volume of mortgage loans continues to rise, yet the pace has weakened since 2023.
This deceleration reflects both market pressures and structural constraints. Home prices have climbed to record levels, while average interest rates on new mortgage loans have increased. For many families, the dream of homeownership now feels more distant than ever.
“High housing prices and rising mortgage rates have led to weaker demand,” the Central Bank report states. “At the same time, limited resources at the Mortgage and Credit Guarantee Fund and the funding structure of banks reduce their ability to issue mortgages from their own capital.”
As a result, Azerbaijan’s mortgage affordability index – which measures how easily citizens can obtain housing credit – declined further in early 2025.
Armenia: Expanding Access Despite Rising Costs
A look across the border shows a different trajectory. Armenia’s mortgage market continues to expand rapidly, supported by active state policy and fiscal incentives.
In 2025, mortgage lending in Armenia increased by 25.6% year-on-year, and the total loan portfolio surpassed 1 trillion drams, roughly 10% of GDP.
The government’s mortgage income tax refund program now covers over 60,000 beneficiaries, allowing borrowers to offset part of their interest payments.
These measures have not insulated Armenia from global inflation or rising property prices, but they have softened the blow – maintaining demand and encouraging banks to lend.
Georgia: Competitive Market, Moderate Risk
In Georgia, the mortgage sector remains relatively stable. While interest rates fluctuate around 6–7%, the market benefits from open competition among commercial banks and easier access for foreign investors. The ratio of mortgage loans to GDP is higher than in Azerbaijan, but debt servicing costs are manageable for most households due to flexible loan terms and broader refinancing options.
In short, Georgia’s system shows what Azerbaijan lacks – a diversified, consumer-oriented credit environment where banks compete, not restrict.
Azerbaijan’s Challenge: Prices Up, Policy Static
Azerbaijan’s housing prices have soared faster than wages, eroding affordability. Yet state mortgage support remains modest and bureaucratic. The Mortgage and Credit Guarantee Fund is limited in resources and reach, serving mostly public-sector employees and a narrow slice of middle-income borrowers.
Private banks, constrained by funding structures and tight liquidity, issue fewer mortgages from their own balance sheets. Meanwhile, speculative property investment continues to distort the market, driving up prices and locking out ordinary families.
The Central Bank’s report hints at a paradox: while economic growth and urbanization fuel housing demand, credit conditions have not evolved to meet that demand in a sustainable way.
What Azerbaijan Can Learn
Targeted Tax Incentives (Armenia’s Model):
Armenia’s mortgage income tax refund helps thousands of families enter the market. Similar relief in Azerbaijan – such as deductible mortgage interest for first-time buyers — could ease pressure on households.
Mortgage Fund Reform:
The state fund needs recapitalization and broader eligibility criteria. A more flexible model could unlock liquidity for banks and reduce reliance on short-term funding.
Tackling Speculation:
Baku’s property prices are inflated by speculative buying. Taxing second and third properties, or imposing stricter purchase reporting, could stabilize the market.
Transparent Data:
Regular publication of housing affordability indices and regional loan data would improve market transparency and policymaking.
A Regional Divergence
The South Caucasus is moving in three directions at once. Armenia is stimulating demand through incentives. Georgia is balancing growth with competition. Azerbaijan, meanwhile, risks drifting into a middle ground – where prices rise, credit slows, and homeownership slips further away.
If policymakers fail to adjust, the “mortgage slowdown” described in the Central Bank’s report could become something worse: a generational freeze on affordable housing.
