Gediminas Šimkus, Chairman of the Board of the Bank of Lithuania, says that they want to improve the refinancing process of housing loans.
“To free the user from excessive constraints and additional costs.” We believe that changing your creditor should be free. Our detailed analysis of the home loan market showed that refinancing would allow significant savings for a large portion of the population. Second, refinancing is unpopular. Thirdly, people don’t take advantage of the opportunity, not because they don’t care about the money, but because the procedure is complicated and expensive”, G. Šimkus said at the press conference held on Thursday.
The Bank of Lithuania and the Ministry of Finance, which submits proposals, say that currently only individuals use the refinancing option, which is determined by the complexity and cost of the process.
“In our estimation, if the process is facilitated and refinancing is started, the current holders of housing loans, taking advantage of the market conditions, could together save – attention – up to half a billion euros in the long term,” said G. Šimkus.
“But even in the event that not everyone who is concerned, but only a third of consumers refinanced their loans, would achieve that conservative margin reduction of 0.2 percentage points, they could save about 100 million in the long term. euros,” he added.
The statement of the Bank of Lithuania states that the margins of new housing loans with a variable interest rate have decreased significantly and it is beneficial to refinance the loan. Data available to the Central Bank show that in recent years, the average margin on housing loans has fallen by about a third from the highs reached in 2022 (from 2.4 to 1.65 percent).
“In the current market conditions, refinancing would benefit at least half of those with home loans, and if refinancing fees could be reduced, it would benefit two-thirds or 160,000 people.” of households with housing loans”, said the head of the central bank.
According to G. Šimkaus, now the refinancing process is complicated, “a long, winding journey with seven stations awaits”.
“We propose to make this path easier, first of all, by abandoning the mandatory reporting of real estate assets. (…) Notary fees, Registry fees – about 200 euros – would be payable by the new creditor”, G. Šimkus mentioned some of the fees.
According to the calculations of the Bank of Lithuania, all administrative, property valuation, notary and other fees for the user related to refinancing can reach more than 1,000 euros when refinancing 100,000. euro loan.
G. Šimkus states that when calculating the benefits of the proposals, the initiators assessed the current refinancing costs, the remaining installments of the existing loan and future loan installments.
“The larger the amount, or the longer the remaining term, the more interest payable, of course, can be saved. As an example: we have 100 thousand EUR loan, its refinancing costs would be slightly more than EUR 1,000.
Let’s say refinancing this loan would reduce the margin by 0.2 percentage points, a very conservative estimate of the reduction. The remaining duration of the loan, let’s say, is 30 years (…). In this case, just because of the decrease in the margin, it would be possible to save about 1,200 euros, because the amount of saved interest would reach 2,200 euros,” says the chairman of the LB board.
So, he said, refinancing can be beneficial now, but removing the additional fees would make it even more attractive.
“Thus, in summary, after implementing our suggestions, the user would no longer have to “wear clogs” and pay for them. And the facilitations are procedural and financial,” says the head of LB.
According to him, this first requires changes in laws. Until the innovation comes into effect, G. Šimkus urged users not to overpay for financial services, and if they are not satisfied with them, to “vote with their feet” and choose the most suitable service provider.
The Minister of Finance Gintarė Skaistė noted that the housing loan is the longest financial obligation that one has in one’s life.
“Interests and margins change during such a period, while refinancing loans is quite difficult. The essence of the proposal is to make the process cheaper, to transfer the costs to the new credit recipient. And to simplify the process”, said the minister.
“We hope that during the summer we will be able to harmonize the bill both with the market and with other institutions,” she added, hoping that the changes will shake up competition in the market.
According to the minister, it is expected that the law would be adopted during the autumn session of the Seimas.
Thus, it is proposed to make it easier and cheaper to refinance housing loans for consumers according to the following proposals:
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determine the obligation of the original credit recipient within the set deadline and provide the relevant data to the new credit provider free of charge – the user would no longer have to worry about bank statements
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establish the possibility of repaying the loan without compensation not only on the day of the interest rate change – loan holders could refinance the loan essentially at any time without incurring the costs of early repayment of the loan to the original creditor
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consumers would no longer have to submit a new real estate appraisal of the refinanced loan to the new creditor – if necessary, it would be carried out by the new creditor at its own expense
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the creditor refinancing the loan would not be able to charge the loan agreement fee
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the user would not have to pay any fees for notary services and mortgage de-registration and registration, they would be paid by the new creditor
This is one of the proposals of the ministry and the central bank to ease the situation for home loan holders.
We remind you that at the beginning of May, the Government approved the proposals of the Ministry of Finance and the Bank of Lithuania, obliging credit institutions to ensure every real estate loan recipient a real opportunity to choose the type of interest, the ministry announced.
The draft law envisages obliging the credit institution, before concluding the loan agreement, to provide the consumer with at least two alternatives: the option to choose a home loan with at least a 5-year fixed interest rate or with a variable interest rate.
“Practice shows that in Lithuania there is no real opportunity for the consumer to choose and almost all housing loans are granted with variable interest rates – thus the risk due to the increase in interest rates is transferred to the borrowers”, says Finance Minister Gintarė Skaistė in a statement.
According to the analysis data of the Bank of Lithuania, in 2023 only 3 percent on average. new loans were issued with a fixed interest rate (fixed for a period of more than 1 year), while in the euro zone – 78%.
It is planned to submit the draft law for consideration to the Seimas in the spring session. The expected date of entry into force of the proposed amendment is May 1, 2025.
