“These amendments are targeted and will not affect people acquiring their first housing. However, they will prompt a more accurate assessment of the possibilities to repay the second or third housing loan and potential consequences in the event the financial situation worsens. Our analysis shows that households with more than one housing loan face a higher risk of running into financial problems in the event of sudden changes in the economic situation. This also poses a higher risk to financial stability, especially now, when the temperature in the housing market is rising and expectations regarding the participation in the housing market are growing,” said Gediminas Šimkus, Chairman of the Board of the Bank of Lithuania.
The amendments will not affect households taking their first housing loan: the minimum down payment requirement will remain the same as earlier and comprise at least 15% of the value of housing purchased.
A higher minimum down payment requirement of 30% will be applicable only to the second and subsequent credit agreements as well as in the case the amount of previous housing loans is increased. Exemptions will only apply to households with the outstanding amount of each previous loan lower than 50% of the value of housing purchased using that loan. The second and subsequent housing loans of such households will be subject to the minimum down payment requirement of more than 15%.
The exemption will also be applicable when a household increases the amount of its first and only housing loan without mortgaging additional real estate or by mortgaging real estate that already belongs to it. This essentially allows increasing the amount of a single credit for repair, construction, reconstruction or other purposes, but does not create a possibility to circumvent tighter regulation of secondary loans in order to increase the amount of available single credit with the purpose of using it to fund the acquisition of other real estate.
Until recently, the second and subsequent loans have been subject to the LTV ratio of less than 85%, but no specific limit has been set.
These amendments to the Responsible Lending Regulations will enter into effect on 1 February 2022. However, the expectations of those households who took decisions on housing acquisition prior to the publication or entry into effect of these amendments will be taken into consideration. Therefore, the new requirements will not be applicable to those who received binding proposals from credit issuers or where decisions to grant a credit were taken before the entry into effect of this resolution. This also includes the cases when a preliminary purchase-sale agreement concerning mortgaged real estate has been signed prior to the date of the adoption of this resolution.
The intention to apply a higher down payment to the second and subsequent loans was announced in September. After consultations with market participants, the Board of the Bank of Lithuania adopted the revised draft of the changes to the Responsible Lending Regulations on 11 November.
