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International Internet Magazine. Baltic States news & analytics Saturday, 24.08.2019, 14:51

Conditions provided for market participants to prepare for new mortgage credit market regulation

BC, Vilnius, 31.01.2017.Print version
With updating the Responsible Lending Regulations, the Bank of Lithuania has finished adoption of secondary legislation within its area of regulation, necessary for the implementation of the provisions of the Law on Credit Relating to Real Property, to come into force as of 1 July 2017. This Law transposes into Lithuanian law the so-called Mortgage Credit Directive, which regulates the procedure for the provision of mortgage credit and credit involving real property collateral, as well as protection of credit taking parties.

The new Law is primarily a law on consumer protection. It not only transposes the provisions of the Directive, but also systematises the existing good practice within the Lithuanian market, favourable to consumers. It means that a credit taking party will need less effort and negotiation in order to include the most favourable parts of bank offers into the final credit agreement, as many such favourable conditions will be provided for in the Law. Market participants now have a whole package of new requirements, which consists of ten legal acts adopted by the Bank of Lithuania, and can fully prepare for their coming into force in the middle of this year,’ said Tomas Garbaravičius, Member of the Board of the Bank of Lithuania.

He noted that the new law is applicable not to certain types of financial institutions, but to the mortgage credit provision activity as a whole – thereby establishing uniform competition terms and conditions both for banks and non-bank market participants.

The future changes in mortgage credit market regulation are highly important for not only residents, but banks as well. At the end of November 2016, banks had provided mortgage credit to the amount of EUR 6.5 bln, which accounted for approximately 40% of the entire credit portfolio.

Once the Law comes into force, legal persons willing to provide mortgage credits or act as intermediaries in this activity, will have to be entered into the public lists managed by the Bank of Lithuania, provide respective documents, while their management and employees will have to meet necessary qualification requirements. All of these entities will be supervised by the Bank of Lithuania and will be subject to the Responsible Lending Regulations. Until now, the Bank of Lithuania did not supervise non-credit institutions providing mortgage credits.

Of the new consumer protection requirements, Tomas Garbaravičius singled out more favourable possibilities for early reimbursement of credit and refinancing, mandatory disclosure of the components of variable interest rates (only invariable interest rates fixed for the entire credit period will be referred to as fixed) and the possibility of a three-month ‘credit holiday’, when the payment of credit instalments can be postponed for the consumer due to financial difficulties faced as a result of important reasons. In addition, penalty for payments overdue will not be able to exceed 0.05 per cent for each day of delay.

The Responsible Lending Regulations have been updated with a view to the terms used in the new Law and they specify other requirements of the Law, related to the assessment of creditworthiness and responsible lending. These requirements of the Responsible Lending Regulations have been supplemented taking into consideration the practice of their application during the last five years; however, the main principles of responsible lending remain unchanged. Natural persons seeking credit will have to continue to accumulate a down payment amounting to 15 per cent of the housing value, will not be able to allocate to credit repayment more than 40 per cent of the household’s monthly income, while the credit term will not exceed 30 years.

To implement the Law on Credit Relating to Real Property, the Board of the Bank of Lithuania, in December 2016, approved the Regulations for Completing the Standard Credit Information Form, the Regulations for the Calculation of Indemnity for the Repayment of Real Property-Related Credit before Due Date, and the Regulations for Advertising Real Property-Related Credit. The requirements for the appointment of management of a creditor, credit intermediary, operator of a peer-to-peer lending platform have also been made more specific; the procedure for entering creditors and operators of a peer-to-peer lending platform on the Public List of Creditors and the Public List of Operators of a Peer-to-Peer Lending Platform Acting Under Law, and on the removal from these Lists, as well as the requirements for handling these Lists, etc. have also been established.

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