Lithuanians are overpaying for their mortgages, so the Bank of Lithuania and the Ministry of Finance are proposing measures to make it easier for borrowers to refinance. The Banking Association is critical of the proposal.
Complicated bureaucratic hurdles and additional fees that can reach into the thousands of euros prevent many mortgage holders from seeking better terms through refinancing.
Gediminas Šimkus, chairman the Bank of Lithuania, says that while in Western Europe the possibility of refinancing a mortgage is used by up to a third of borrowers, in Lithuania it is only done by a handful of people.
“A complicated process, yes. But also the cost. If we were to take out a loan of 100,000 euros now, the refinancing would cost over 1,000,” says the central bank chief. “The essence of our proposal is that refinancing should be free for the consumer.”
Not only free, but also simpler. According to Šimkus, changing a bank should be as easy as switching a mobile service provider.
The Bank of Lithuania and the Ministry of Finance are proposing to do away with asset valuation reports, existing creditor penalties for refinancing, and notary intervention. Finally, customers would be able to choose the best offer, saving both time and money, by having both their current creditor and the competitor put their offers on the table.
“The aim is to encourage competition in the banking sector so that people can refinance their existing bank loans,” says Finance Minister Gintarė Skaistė. “At present, the margins that people are charged have been reduced on average. This means that people taking out new loans are, on average, getting better terms than those who took out mortgage contracts earlier.”
“To summarise: it should have happened sooner,” says Kęstutis Kupšys, member of the European Economic and Social Committee. “If the political climate is now good and if the proposal is tabled, potentially even adopted, we will probably get good news – Lithuanians will not be overpaying for mortgages as much as before.”
The proposal, however, has attracted criticism from the Banking Association. According to its president, Eivilė Čipkutė, all costs will have to be borne by the refinancing institution, and credit institutions will still ask for asset valuation reports.
“This is one of the main pillars of financial stability. A credit institution needs to know whom it is lending to, what the condition of those assets is and what their value is at the moment. The costs are not going anywhere,” says Čipkutė.
The Ministry of Finance hopes to agree on the draft law over the summer, both with the market players and with other state institutions, and to submit the bill to the parliament in the autumn.
Similar changes to the refinancing of mortgages have been adopted in Latvia this year and are planned in Estonia.
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