Latviski English По-русски
Sunday 22.07.2018 | Name days: Marija, Marika, Marina

Lithuania scrambles to tighten mortgage rules

(+1 rating, 1 votes)

Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RULinas Jegelevičius for the BNN

Are you zeroing in on an apartment or house of your dreams in Lithuania? You’d better hurry up with the mortgage loan! Аs the Central Bank of Lithuania (CBL) readies to hammer out a set of stringent mortgage rules, many future homeowners are about to face some major roadblocks along the way to the coveted property.

Among the proposed amendments to the so-called Responsible Lending Provisions (RLP) are shorter mortgage repayment terms- from 40 down to 25 years (!)- tougher foreign currency mortgage conditions and no possibility for mortgage refinancing.

Central Bank drawing up new rules

The Central Bank is going to draw up the RLP amendments over a couple of weeks before they, along with the EU Mortgage Directive, are transposed into the Lithuanian legislation, expectedly before March, 2016.

But with news out not only scores of potential mortgage-takers are bristling against the initiative, but the Lithuanian Bank Association (LBA), too, warning that frequent changes to the legislation, especially toughening the borrowing, might have an ill-effect on all economics.

Simonas Krėpšta, the director of Financial Stability Department at the Central Bank of Lithuania (CBL), insisted to Delfi, a Lithuanian news site, that the RLP changes are about the Bank’s good will                                           to protect people from a possible mortgage interest rate shock in the future.

«Currently, extremely low interest rates prevail in the marketplace, but they can bounce back to the usual level in the future. Low interest rates do not motivate households to appropriately assess the expenditures for the mortgage, which can lead to overrating one’s mortgage loan return possibilities. Thence, the necessity to prevent households from assuming excessive financial commitments and have them protected against the risks stemming from the possible interest rate growth,» the CBL officer told.

The bank department director believes the existing provision on the maximum mortgage repayment time –at 40 year now in Lithuania- is just too high compared in that regard to other countries around.

It allows assuming too big financial commitments, often too heavy for the mortgage payer, taking into account the income.

The Bank mulls shortening the maximum term for mortgage loan return from 40 to 25 years.

«Following the international practice, also considering adverse impact of duration of a long-term loan to a household’s financial stability the maximum mortgage repayment term will be shortened,» the banker said

Borrow amount earned over last six years

Among the proposals, the «factual» interest rate, which is no smaller than that set by the Central Bank, will have to be used by banks to assess a household’s ability to pay back the loan. Until now, the «present» interest rate, hovering in historic record-lows, is used for the assessment.

The CBL intends to set the interest rate norm heeding the statistics of long-term mortgage interest rate norms.

The Bank also wants potential mortgage-takers to borrow amount that is no larger than income from the last six years is.

Now, Lithuanian citizens can go deep into debt equal to the proceeds from the last eleven years.

For example, with the average wage in Lithuania in the last quarter of 2014 being at 553.9 euro after deductions, one with the wage could borrow 73,115 euro for buying a property.

The CBL seeks to reduce the maximum mortgage debt up to 39,881 euro.

But those with considerably better income could expect exceptions from the rule.

The Central Bank also mulls toughening borrowing conditions for foreign currency mortgages and wants to embed in the new legislation prohibition to link loans with other financial products.

Recently, with the Swiss franc soaring, so did the mortgages for scores of distressed Lithuanians, but the measures the CBL intends to adopt are said to prevent that from happening ever again.

New rules will strain economy

With the news on the proposals stirring a buzz in the country, others bankers doubt whether this is the right time to tighten mortgage conditions.

«The Responsible Lending Provisions in their current shape do the job- set limits on mortgages. In fact, the RLP is a lot more effective than the Mortgage Loan Directive…It seems to us there is no bubble –people tend to borrow inconsiderable amounts and tend to buy modest housing. The new owners are presented (by bank representatives-L.J) calculations what happened to the mortgages if the interest rates increased maximally. I do not know whether now is the right time to do it, when in Europe there are many other various ways aimed to boosting the economy. Such a decision will have impact on people’s possibilities to acquire their own property and, thence, will strain the economy,» said Stasys Kropas, the president of the Lithuanian Bank Association.

With the mortgage repayment term likely to be curtailed, the amount of monthly mortgage payments will soar, with all the new home owners up to their neck in the financial burden.

«The economy will little benefit from thousands of young, hard-working people, only banks (will benefit)», caution other bankers.

According to Swedbank, the average mortgage in the country at the end of the last year was around 44,600 euro, with Vilnius residents’ average housing loan being the biggest: around 60,000 euro. In Klaipeda, the Lithuanian seaport, the average loan hovered around 47,000 euro in 2014 and in Kaunas, the second-largest Lithuanian city, it was approximately 42,000 euro.

No downpayment available? No worries!

But with the Central Bank of Lithuania readying for the new mortgage condition rules, «Hanner», one of the country’s largest real estate developers, is tempting buyers who simply do not have for desired property enough money for the downpayment.

Usually, the initial payment for developer comprises around 15-20 percent of the property’s price.

Company says this is not a marketing trick, but a real thing the developer wants to pursue.

« We have so many interested in the possibility that we are not able to answer all calls. By this we want to target potential real estate buyers who cannot afford to participate in the market because of the downpayment requirement. Most of the time the people have jobs and get good salaries, but in order to save the money they have to spend from 5 to 10 years. We want to allow them choose a desired apartment and lease it until they accrue the necessary initial funds,» explained Arvydas Avulis, the chairman of the Board of the company.

The builder has over 400 unsold apartments as of now.

The businessman denied that «Hanner» seeks to bypass the Responsible Lending Provisions by that.

«We are not intending to it at all. All what we wants is let the person willing to buy a property save the necessary money for downpayment while leasing the apartment,» he said.

Krėpšta, of the CBL, was cautious about the developer’s initiative, saying the lending bank, Swedbank, has still to follow all the regulations.

«Embedded requirement of 85 percent as the maximum proportion between the property price and mortgage loan protects home-buyers from possible fluctuations of price,» he insisted, adding, «the key objective of the measures is to limit too rapid and imbalanced property credit growth and form responsible borrowing practice. Lithuania and other countries’ painful practice reinforces the notion that too rapid growth of lending ends up in a recession of real estate market and economy.»

Exasperated mortgage owner

«I personally know five people at least who pay mortgages, but now, with some of the banking provisions tightened, they cannot refinance their loans. They are denied to borrow cheaper because, upon the new conditions, they must prove that their current income is bigger than that when obtaining the mortgage loan. Earlier, a four-member family would easily get a credit with monthly income in average of 6,000 litas (1740 euro), but now, with the income slightly lower, their request for a mortgage will likely be turned down. This also applies to mortgage refinancing, too. No matter that I make monthly mortgage and mortgage interest payments in time, but the Central Bank just won’t you let me get the mortgage refinanced for a better one, with a lesser interest rate. This is utter crap,» Dovydas Bajoras, a businessman in Klaipeda, told BNN.

SauliusVargonis, a senior chief at Ober-Haus, one of the largest Lithuanian real estate companies, told BNN be believes that the three largest Lithuanian cities’ mortgage takers will be affected most by the stringent new Responsible Lending Provisions if they are enacted.

« They will not especially strain, I reckon, economy property buyers, but will affect those willing to buy higher-segment or luxurious property. We do not now at the point how many people can be ill-effected, but obviously, there will be some ripples swirling around from this,» the expert told.

Ref: 020/

Leave a reply

Week in Lithuania. Liberals ex-leader fails to recover confiscated cash

Eligijus Masiulis, a former Liberal Movement leader on trial in a major political corruption case, has failed to recover cash that was found and seized during searches of his home.

BNN summary of the week: open presidential election in Latvia and no more plastic bags for shoppers

BNN offers a summary of this week’s topical news in a variety of categories: Future; Change; Fight; Decline; Business; Progress.

SRS: cash register reform still stagnates, but has become much faster than it was last year

The cash registers reform continues stagnating. However, it has become much faster than it was a year ago, as reported by State Revenue Service.

Specialists to search for solutions to topical environmental problems in Ventspils

On Friday, 20 July, a meeting was held between Ventspils Commercial Port representatives and specialists from State Environment Service.

Children with functional disorders to receive services financed by EU funds

Child invalids will have access to social services intended to improve their social skills and mobility. More than EUR 4.2 million has been allocated for this goal from the European Social Fund, as confirmed by Latvia’s Central Financing and Contracting Agency.

Producer price level in industry up 4.3% in Latvia

Compared to June 2017, the average level of producer prices in Latvian industry increased by 4.3 % in June 2018. Prices of products sold on the domestic market rose by 4.8 % and those of exported products by 3.7 %.

Total tax debts in Latvia in July – 1.212 billion euros

At the beginning of July total tax debts in Latvia, including outstanding debts, halted debts and debts applied with repayment term extensions, accounted for EUR 1.212 billion, which is 0.8% less than a month prior, according to data from the State Revenue Service.

Survey: every third Latvian resident has received illegal loan offers

Nearly every third resident in Latvia or 31% of respondents admit having received offers to use illegal loan services, as concluded in a survey performed by Latvian Alternative Financial Services Association and SKDS.

Libya opposed to EU's idea to establish migrant centres in North Africa

Libya is against the solution of the European Union to set up migrant centres in the North African country as a means to keep migrants from arriving in the bloc and Libya would not be convinced with financial support, its Prime Minister Fayez al-Sarraj has noted.

Arrest warrant on Catalan ex-President cancelled by Spain

The Supreme Court of Spain cancelled a European arrest warrant for former Catalan regional leader Carles Puigdemont, as Germany refused to extradite him to face accusations of rebellion for declaring the independence of Spain's region, Catalonia in 2017.

Latvian government plans to allow handing expired food to charity

Latvia’s Agriculture Ministry has prepared amendments to the Law on the Supervision of the Handling of Food that provide permission to hand over certain types of food products to charity after the end of their expiry date.

Estonian industrial producer prices up 2.9% since June 2017

Estonian industrial producer price index has risen by 2.9% between June 2017 and the first summer month this year, resulting in an increase of export prices as well, Estonian statisticians have estimated.

Putin urges NATO to quit «irresponsibly» developing ties with Ukraine, Georgia

Russia's President Vladimir Putin cautioned NATO against developing deeper relations with Ukraine and Georgia, evaluating such a policy was irresponsible and would have consequences for the military alliance.

Latvian parliament not in a hurry to support president Vejonis for a second term

Political parties represented in the Saeima are not eager to support President Raimonds Vējonis for his remainder for a second term.

Weather in Latvia will remain warm and even hot at times

Weather in Latvia in the nearest couple of days will be dictated by a cyclone. Because of that the sky will be partially covered by clouds; thunderstorms are also expected, as reported by State Environment, Geology and Meteorology Centre.

Hungary sued in EU Court for criminalising help to illegal immigrants

The European Union's executive body has stated that a law in Hungary that criminalises support for illegal immigrants is in breach with EU law and Hungary has now been referred to the European Court of Justice for the alleged non-compliance.

Estonians buy alcohol in Latvia; country loses EUR 20 million in six months

Latvian stores located close to the Latvian-Estonian border have sold 1.6 million litres of strong alcoholic drinks in the first half year of 2019. This means Estonia has lost more than EUR 20 million in taxes, according to data from Association of Estonian Alcohol Producers and Importers.

Lithuania’s election watchdog slams ruling LFGU over popular TV series

Political messages can be channeled in various ways and the ruling now Lithuanian party, LFGU has chosen a very delicate way of the communications – through a TV series featuring the beauty and the ambiance of Naisiai, a picturesque settlement in Siauliai district.

Association: around 3,3000 people know of their HIV infection but receive no treatment

HIV remains a serious problem in Latvia – around 3,300 people are aware of their status but receive no treatment and continue spreading the infection. Because of that, it is necessary to act quickly for Latvia to lose its status as HIV kingdom and limit the spread of the infection, says Baltic HIV Association, informing decision-makers and responsible officials in institutions and hospitals about the HIV/AIDS situation.

Driver shortage may force reduction of international road haulage volumes

Latvia’s road haulage companies have started experiencing shortage of drivers. On top of that, if employment conditions for residents of non-EU member states do not change, it may be necessary to reduce the volume of road haulage volumes, says Latvijas auto president Valdis Trēziņš.

Lattelecom’s turnover up 9% in first half-year of 2018

Lattelecom Group’s turnover reached EUR 98.7 million in the first half-year of 2018, growing by 9% in comparison with the same period of 2017, according to unaudited financial results.

1,140 fewer births registered in Latvia in 2017

Since 2016 the number of births in Latvia is declining again. Compared to 2016, a total of 1,140 births fewer were registered in 2017. Also, the provisional number of births registered over the first six months of 2018 (9,664 children) is by 664 children smaller than that registered over the respective period of 2017.

Citadele Bank decides to reform Lithuanian subsidiary as a branch office

Citadele Bank has decided to reform its Lithuanian subsidiary as a branch office, as confirmed in the statement the bank submitted to Nasdaq Riga.

Russian pension age hike discussed amid protest outside Duma

As the Russian paliament votes on the proposal to gradually increase he pension age to 65 for men and 63 for women, some 200 people were seen protesting against the reform in Moscow.

Corruption watchdog chief says bureau has done no illegal actions

After going through Corruption Prevention and Combating Bureau’s past investigative activities, the bureau’s chief – Jēkabs Straume – found it confusing that officers often took no appropriate actions after acquiring evidence or receiving indications regarding necessary steps.