The Bank of Lithuania (LB) states that currently it would be favorable for residents to refinance their housing loans, but only individuals use this opportunity. This is determined by the complexity and cost of the process. After refinancing the loans, according to LB, their holders could save up to 500 million in total. Eur.
“We believe that changing the creditor should be free of charge for the user, and the process should be much simpler,” says Gediminas Šimkus, chairman of the LB board.
LB, together with the Ministry of Finance, makes proposals, which, if accepted, would be enough for the loan holder to contact a new creditor, who would carry out most of the refinancing procedures.
Gintarė Skaistė, Minister of Finance, notes that a home loan is usually the longest financial obligation during a lifetime, which can last up to 30 years. Loan interest rates and margins change over a long period of time, and it is difficult to change banks and refinance a loan in Lithuania.
“In other states, refinancing is much more common, apparently because the process is simpler, faster and cheaper. The essence of this proposal is to make the process cheaper so that it becomes free for the person, transferring the costs to a new credit provider,” says the minister.
“With these offers, we aim to ensure that the customer who receives a home loan has not theoretical but real freedom to negotiate, choose and not overpay.” The client does not have to be loyal to the same bank for decades, if he finds another one that can offer more favorable loan conditions”, emphasizes G. Šimkus.
Useful for at least half
According to LB’s calculations, refinancing would benefit approximately 160,000 people. households and would save up to 500 million Eur.
The margin has decreased
Refinancing loans would benefit those residents who took out loans with higher margins than currently applied.
LB data show that in recent years, the average mortgage loan margin from 2022 reached heights decreased by about a third – from 2.4 to 1.65%.
However, about two-thirds of all loans are granted with higher margins. Nevertheless, home loans are rarely refinanced, basically only in isolated cases.
“People don’t use this opportunity, not because they don’t want to, but because it is both complicated and expensive,” says G. Šimkus.
One of the reasons is that the refinancing process is complicated and requires additional costs: the consumer must provide a new appraisal of the mortgaged property to the new creditor, obtain a certificate of the loan balance from the existing bank and consent to mortgage the property to the new creditor.
The conclusion of a new contract usually requires the payment of a contract conclusion fee, which can reach hundreds of euros.
According to LB’s calculations, all refinancing-related administrative, property assessment, notary and other fees for the user can reach more than 1,000 EUR when refinancing a 100,000 EUR loan.
“After implementing these changes, refinancing would be significantly simplified and cost-effective for consumers. In addition, knowing that the customer will be able to easily refinance his home loan with competitors, the original lender would have an interest in keeping him. Consumers would have more opportunities to seek more favorable loan conditions without changing the creditor,” states the LB statement.
According to G. Šimkaus, in order for the proposals to take effect, amendments to the Credit Law related to Real Estate are needed, which the LB will prepare together with the Ministry of Finance. They will still have to be approved by the Government and the Seimas.
“The goal would be to start with this draft law at the beginning of the autumn session of the Seimas, so that next year we can take advantage of the opportunities provided by this new model,” says the Minister of Finance.
Sees many flaws
G. Šimkus mentioned at the press conference that in 2020 according to data, up to 50 people with housing loans took advantage of refinancing.
“50 of the 250,000 people who currently have loans in Lithuania. Theoretically, we have such an opportunity, but in practice it does not work”, asserts G. Šimkus.
Eivilė Čipkutė, the president of the Lithuanian Banks Association (LBA), which represents the country’s financial and credit institutions, says that the data provided to the LB is old, and the current situation should be evaluated, which has changed.
She sees many flaws in the new proposals.
“The proposed new procedure charges refinancing costs to one party to the transaction, so the refinancing credit institution may be less interested in initiating such transactions. In other words, the new procedure will not encourage, but will reduce the supply of refinancing services”, comments Eivilė Čipkutė, president of LBA, adding that the proposed proposals – contrary to the claims of the LB and the Ministry of Finance – would actually complicate the operating conditions for smaller credit institutions.
Marius Jansonas, representative of the Consumer Alliance (VA), notes that the refinancing transaction initiative is already complicated.
“As far as we know, applying customers simply do not receive offers from other banks – banks do not provide them, they do not have enough incentives. Banks believe that after receiving an offer from another bank, the client will receive the same conditions in his bank and will stay there,” explains M. Janson, seconding E. Čipkutei that if all refinancing fees were transferred to banks alone, incentives to provide refinancing services would remain. less.
Loan refinancing, or at least efforts to refinance, according to the VA representative, became significantly more active a couple of years ago, when base interest rates started to rise, so the LB should provide a mandatory obligation for banks to present a refinancing offer to every client who applies.
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