As Lithuania’s housing market heats up, especially in major cities, the Bank of Lithuania is proposing several policy changes to stabilise the market and make home ownership more accessible for first-time buyers.
The central bank wants to lower the required down payment from 15% to 10% of a home’s value for those purchasing their first residence. For buyers acquiring a second or subsequent property, the minimum down payment would increase to 30%, with no exceptions.
The proposed changes would help prevent overborrowing when interest rates are low and ensure borrowers can still manage repayments if rates increase, explained Julita Varanauskienė, deputy chair of the Bank of Lithuania.
Under the current rules, monthly loan repayments cannot exceed 40% of a borrower’s income. The central bank wants to increase this cap to 50%, even in scenarios where mortgage rates rise to 6%.
“We’re seeing the return of buyers who have managed to save enough for a down payment, and the mid-range housing segment is rebounding,” said Eglė Savostė, head of analytics at real estate developer CITUS.
According to Savostė, Vilnius is experiencing a construction boom, with cranes visible across the city. Each month, between 700 and 900 older apartments are sold, while sales of newly built apartments range from 500 to 600 – double the number from the same period last year.
The most popular type of home in Vilnius is a two-room, 45-square-meter apartment priced at around €165,000.
The central bank believes that high home prices have made housing increasingly unaffordable for younger buyers.
“This policy will especially benefit people trying to buy their first home with a mortgage,” Varanauskienė said. “It will allow them to enter the housing market sooner and save up the down payment.”
Many first-time buyers have welcomed the proposed changes.
“It’s great,” said Morta, a young Vilnius resident. “Down payments are still quite high. Even for a one-room apartment, you need to have saved up quite a lot.”
However, commercial banks have expressed scepticism, warning that a lower down payment increases financial risk for borrowers.
“This means they’ll need larger loans and will have higher monthly payments. If interest rates fluctuate, payments will increase even more,” said Eivilė Čipkutė, president of the Lithuanian Banking Association.
Banks also dispute the claim that housing affordability has significantly worsened. “Today, saving for a down payment is about as achievable as it was in 2019. Incomes have risen since then,” Čipkutė added.
For those already holding one or more mortgages and seeking to purchase additional properties, the Bank of Lithuania is planning stricter measures – including a mandatory 30% down payment.
“These stricter requirements are aimed at preventing excessive demand for housing and the resulting price inflation,” Varanauskienė said. “And we know: what rises too quickly often crashes painfully.”
Investor Dainius Zgrabskis, who expects to own nearly 50 apartments by the end of the year, said the proposed restrictions are unlikely to affect serious investors.
“Those buying for investment will do their calculations and find the resources,” Zgrabskis said. “But if first-time buyer numbers rise, prices could increase – and that burden will fall on renters.”
He added that higher demand from first-time buyers could push up rents as property owners adjust pricing once lease agreements expire.
According to banks, not only investors and speculators are buying second homes – many families are seeking additional properties for their own use. The new rules may make it harder for them to purchase, especially in regions and resort areas.
The central bank estimates that the proposed changes could lead to a housing price increase of up to 1%. The new policies are expected to take effect next year.
Newsletter
Every Friday morning.
