Banks, Financial Services, Latvia, Legislation, Loan, Real Estate

As reported, Saeima approved amendments to the Insolvency Law, according to which bank mortgages issued to borrowers who buy a home/apartment, and have no other domicile, will be considered non-recourse loans. The regulation will apply only in those cases where the debtor's home/apartment is sold due to the person's insolvency.

The Association of Commercial Banks says it is deplorable that Saeima has approved the amendments, as this will significantly reduce the period during which a debtor, in the event of insolvency, has to settle his or her obligations to a bank, and may prompt borrowers to default on their obligations.

Furthermore, the amendments also make the pending state support program for families planning to buy an apartment/private home, meaningless. "For Latvian families, and especially young families, this is an unexpectedly bad decision by our parliament members," the Association of Commercial Banks President Martins Bicevskis declared.

The association reminds that it has already pointed out in the past that these amendments will make mortgages unaffordable for most residents of Latvia, families will be unable to take out loans for apartment renovation, because banks will now have to increase the down payment to up to 40%, and interest rates may also increase.

The ensuing steep decline in lending volumes will also affect other sectors, in particular the construction sector. Mortgages will become especially hard to come by in the regions, where the real estate market is underdeveloped – again, it will be residents who will suffer the most. Overall, the assessment of Latvian business environment will go down, the amount of investments in Latvia will decrease, as will the country's economic development, notes the association.