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Fixed interest rates would close Lithuania’s mortgage market to EU banks – industry rep

Obligating banks to offer mortgages with interest rates fixed for at least five years would make it difficult for new lenders from other EU countries to provide such loans in Lithuania, Eivile Cipkute, president of the Lithuanian Banks’ Association (LBA), said on Tuesday.

The obligation would not bring about any major changes in the mortgage market, but would increase the bureaucratic burden, according to Cipkute.

“This change will mean that Lithuania is deviating from the EU standard and, as a result, it will be very difficult for credit institutions from other EU countries to offer housing loans in Lithuania. In our assessment, this is the biggest negative aspect of this amendment,” she told BNS.

According to Cipkute, the provision of mortgages is now regulated and standardized at the EU level, and adapting to new laws will require banks to update their information systems.

“In our view, the biggest downside is that Lithuania will deviate from the European standard and we will become less attractive, especially for larger players to enter our market and offer housing loans to private individuals,” the LBA president said.

“In other countries, there is no need for changes in information systems, (…) but to offer these services in Lithuania, specific changes will have to be complied with,” she added.

While the proposed changes would not cause significant changes in the mortgage market or in people’s choices, they would increase the “bureaucracy of the loan provision process”, according to Cipkute.

Gediminas Simkus, the central bank’s governor, says that in 2023, a mere 3 percent of new loans were issued in Lithuania with an interest rate fixed for more than 1 year, compared to an average of 80 percent in the euro area.

Cipkute says, however, that variable interest rates dominate throughout the Northern European and Baltic region.

“In Finland, for example, there are even more variable interest rates. What are the reasons for this? There is no single answer,” she said. “One of the factors is that in countries where inflation tends to fluctuate sharply, it is often variable interest rates that dominate,” said Cipkute.

Also, fixed interest rates may be less preferred by private individuals because they are higher than variable rates, she noted.

Finance Minister Gintare Skaiste said on Tuesday that the parliament is expected to discuss and adopt the amendments in the spring session.

Source: BNS

(Reproduction of BNS information in mass media and other websites without written consent of BNS is prohibited.)


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