Lithuania’s central bank has proposed to oblige commercial banks and other lenders to offer people fixed interest rates on their mortgages for at least five years. The move comes in response to sky-rocketing repayment sums, as most lenders in Lithuania only offer variable-rate mortgages.
"The Bank of Lithuania does not encourage consumers to pick fixed or variable interest rates as consumers need to decide themselves, but consumers must be provided with a real opportunity to choose the most suitable product for them and receive information about the outcome of one or the other choice," Gediminas Šimkus told reporters on Tuesday.
According to Šimkus, lenders pass on the risk of rising interest rates to borrowers by offering only variable-rate mortgages. In Lithuania, 96 percent of mortgages have variable interest rates and 4 percent have fixed interest rates.
According to the central bank, the cost of fixed interest rates in Lithuania is one of the highest in the euro area and exceeded the average by 1 percentage point in 2022.
Variable-rate mortgages are also prevalent in the other Baltic states, Finland and Sweden. Meanwhile, fixed interest rates are particularly popular in countries with a large and well-developed financial sectors, such as France and Germany, where more than 85 percent of new loans have fixed rates at least for a certain period of time.
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