On December 6, 2023, amendments to the Law on Protection of Consumer Rights were adopted with the aim of compensating loan interest to mortgage borrowers for the purchase or construction of housing. This was decided to protect public welfare, given the substantial cost burden on households of rising EURIBOR rates and high inflation.
As previously reported by LSM, the Ministry of Finance came up with proposals to provide mortgage relief to borrowers, which were opposed by banks, who argued that the measures risked distorting the market. That in turn led to accusations that the banks were acting like a cartel by a former Finance Minister. The law also came in for heavy criticism from the European Central Bank.
The Ministry of Finance said that according to calculations for the first quarter of 2024, the mortgage borrower protection fee in the amount of 24,235,800 euros was paid into the revenue account of the state basic budget. Taking into account the fee contributions made for the first quarter, the increase in state budget revenues for the first half of 2024 is forecast to be 48,435,800 euros.
Compensation of interest payments applies to mortgage loans for which the contract was concluded by October 31, 2023 and the balance of which does not exceed 250,000 euros. At the same time, amendments to the law were approved by the Saeima, which made switching from one mortgage lender to another cheaper and simpler.
Mortgage loans have been issued to approximately 124,000 borrowers in Latvia - about 14% of the total population, according to the Finance Latvia Association. About 72% of borrowers' monthly loan payments have not increased by more than 100 euros. According to bank data, only 0.5% of customers are unable to cope with their credit obligations.
The State Revenue Service (VID) will transfer loan interest compensation to the payment accounts of borrowers. In the first half of this year, EUR 48,207,104 will be allocated to pay out to borrowers, while EUR 228,696 will be used to cover VID's administration costs.
