The Bank of Lithuania reveals how those with home loans could save: “People don’t take advantage of this opportunity” | Business

“It is necessary to shorten, facilitate, simplify and free the user from excessive restrictions and additional costs,” said Gediminas Šimkus, chairman of the LB board, at the held press conference.

A detailed analysis of the housing loan market conducted by LB showed that refinancing for a large part of those with housing loans would currently allow significant savings. This affects about 160 thousand. Lithuanian households. In the long run, everyone could save a total of 0.5 billion. euros.

The potential benefits can be seen just by looking at mortgage margin statistics. in 2020 the margin increased to about 2.4 percent. An all-time high was reached in May of that year, and the percentages have steadily declined since then. Margins are currently around 1.65 percent, down almost a third from their peak.

Thus, refinancing and renegotiating loan terms simply because of the possibility of having a lower margin would lead to tangible savings for home loan holders.

And if it were also possible to reduce the refinancing costs incurred by the consumer, according to G. Šimkus, refinancing would be beneficial to all loan holders without any hesitation.

Nevertheless, refinancing is very unpopular in Lithuania.

“People don’t use this opportunity not because they don’t care about money, but because the refinancing service is both complicated and expensive,” mentioned G.Šimkus.

“So we have the option of refinancing, but it doesn’t work in practice,” G. Šimkus added.

As he said, currently, in order to refinance a loan, every user faces a long and expensive journey, because first of all, you need to contact a new lender to refinance an existing loan, then choose a property appraiser, submit a real estate (NT) valuation report to the new creditor, contact the old bank regarding the loan balance certificate and consent to re-mortgage the real estate property, conclude a new loan agreement, formalize the secondary mortgage through a notary and deregister the primary mortgage.

If the loan amounts to 100 thousand euros, the total costs of this process for a resident can reach over 1,000 euros. In addition, the creditor can demand compensation, which can reach 3%. from the refund amount.

“Removing these flaws would make it easier for people to take advantage of a more favorable market situation.” This would make it possible to strengthen the user’s bargaining power, which would force market participants and banks to crack down, it would fuel their competition”, said G. Šimkus.

G. Šimkus does not even doubt that the competition will intensify. In his opinion, if the client finds a better loan option in another bank, the existing creditor would start offering more favorable conditions than the current ones. Therefore, more attractive offers would appear for the client even without changing the creditor.

“This would be the way to the most favorable loan price for the consumer,” assured the chairman of the LB board.

The Bank of Lithuania and the Ministry of Finance have prepared the following essential proposals:

• determine the obligation of the original creditor within the set deadline and provide the relevant data to the new creditor free of charge – the user would no longer have to worry about bank statements,
• to determine the possibility of repaying the loan without compensation not only on the day of the interest rate change – loan holders could basically refinance the loan at any time without incurring the costs of early repayment of the loan to the original creditor,
• consumers would no longer need to provide 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,
• the creditor refinancing the loan would not be able to charge the loan agreement fee,
• the consumer would not have to pay any fees for notary services and mortgage de-registration and registration, they would be paid by the new creditor.

“The user should no longer have to wear clogs and pay for them,” G. Šimkus summarized the suggestions.

The Bank of Lithuania, together with the Ministry of Finance and other institutions, will prepare the necessary amendments to legal acts. They will still have to be approved by the Government and the Seimas.

“We hope that during the summer we will be able to harmonize the draft law with the market and other state institutions.

The goal is to start with this draft law in the fall session of the Seimas, so that next year we can already take advantage of the opportunities that this model will provide,” mentioned Finance Minister Gintarė Skaistė.

According to her, changing the refinancing process would really increase the competition of banks, there would be competition not only for new but also existing customers. Even for new players who could enter the market, this would be a signal that the Lithuanian market is open, residents can take advantage of the refinancing opportunity, become clients of new banks.