Saeima decides on simpler mortgage switching process in Latvia

On Thursday, February 15, with amendments to the Consumer Rights Protection Law, the Saeima facilitated the recrediting of mortgage loans to make the process simpler and cheaper. The Saeima also lifted the advertising ban on mortgage loans.

The bill was backed by 80 MPs, no one was against it or abstained in the vote.

Mortgage recrediting is the transfer of a consumer credit, the repayment of which is ensured by a mortgage on immovable property, from one creditor to another upon request of the consumer. So far, the consumer needed the consent of the existing creditor to move to another.

The planned changes require the consumer to approach only the new creditor and not to obtain the consent of the old issuer.

In substance, recrediting is not a new receipt of credit, but a transfer of existing liabilities to another creditor. It is essential for the new creditor that the right of pledge maintains the same level, explained the authors of the bill.

The draft law also provides that the previous creditor is not entitled to ask the consumer for payment for the mortgage recrediting, except in the case of fixed borrowing rates where the previous creditor is entitled to fair and objectively justified compensation for possible costs directly related to early repayment of the credit.

It is also stipulated that the fee for drawing up the new credit agreement may not exceed 1% of the amount of the new mortgage loan. The consumer will be able to pay it in three installments.

The bill also reduces other cost positions in the mortgage recrediting process.

The bill's authors said the proposed mortgage re-lending arrangement would reduce the overall cost to the public. As credit interest rates fall as a result of mortgage re-lending, consumers' ability to borrow for a home will increase, which will strengthen economic activity in the long run.

A European Commission study shows that only 2% of loans are recredited in Latvia. Elsewhere in the European Union, it is between 13% and 35%. Estimates from the Ministry of Economics show that recrediting in Latvia has cost the consumer between 400 and 600 euros so far.

Given that so far credit advertising had been significantly restricted, the amendments abolished the prohibition of advertising for mortgage loans, as well as for real estate construction or residential energy efficiency improvement loans. This will raise consumer awareness of lending opportunities and creditor offers, as well as promote competition in the mortgage lending market, the amendment annotation says.

Changes to the laws are scheduled to take effect the day after their announcement.

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