In order to expand the possibilities offered to consumers to choose the interest rates of a home loan or to refinance on better terms, LB proposed to oblige the credit provider to offer at least two alternatives to the consumer seeking to conclude a housing loan contract – with a variable interest rate. and with a fixed interest rate for a certain period (at least 5 years), price or other hedge against interest rate fluctuations.
LB says offers must be submitted after a consumer credit assessment, providing standard information and explaining their content.
LB also proposes to establish a recommendation according to which the costs of modifying an existing credit contract, when modifying the margin of the variable interest rate loan (with the same credit provider), should not be higher than the costs of concluding a new contract with the same credit provider. .
The bank believes that it is also necessary to provide more detailed information on the pros and cons of interest rate setting and refinancing, to expand the scope of published statistics on loan interest and to create a complete and independent alternative calculator, accessible to the public, which facilitates the decision for the user.
Finally, LB proposes to oblige credit providers to regularly inform existing customers – recipients of home loans – about current market interest rates for home loans and refinancing possibilities.
The refined and clarified proposals are submitted after a public consultation of interested parties. LB is taking steps to implement these measures: it will initiate amendments to relevant legal acts, prepare and publish documents of a recommendatory nature and, in consultation with interested persons, prepare other alternative measures.
“Lithuania is one of the few countries in the Eurozone where consumers have had few options to choose between fixed and variable rate mortgages. Almost all are provided by the latter, thus all the risk of a “The increase in interest rates is transferred to the shoulders of consumers. The Bank of Lithuania took the initiative to give consumers a real opportunity to choose the type of interest”, explains Julita Varanauskienė, Deputy Chairman of the Board of administration of the Bank of Lithuania.
In Lithuania, more than 95 percent in a context of low interest rates, all mortgage loans were granted at variable rates. This means that the interest rate is recalculated at least once a year, and the most popular is 6 months. deadline. As a result, these loan holders feel the impact of rising base interest rates very quickly and their loan repayments increase. Furthermore, most Western European countries are dominated by loans with interest fixed for a period of more than one year, LB informed.
Fixing longer-term interest rates has its price, and before taking out a loan, it is not possible to answer unequivocally which interest rate – fixed or variable – will be the most financially advantageous for the borrower during the fixing of interest or throughout the duration of the loan. However, fixing interest rates provides the consumer with financial resilience and clarity on the amount of loan installments for a specific period specified in the credit agreement, for example 5 or 10 years. or even for the entire credit period.
Lithuanian banks have so far not been inclined to actively offer loans at fixed interest rates, and the price of an extremely limited amount of loans provided at fixed interest rates in Lithuania is one of the highest in the euro zone. Last year, it averaged 1 percent for new loans. point higher than the euro zone average, said LB.
Refinancing housing loans is also not common in Lithuania, although in recent years bank margins have decreased, refinancing loans can be beneficial for consumers. This is particularly relevant for home loan recipients who entered into contracts between 2018 and 2021, when bank margins were higher. Loans from these beneficiaries represent 44 percent. of the entire housing loan portfolio.
Source: The Delfi
