Banks screwed taps on home loans: it will be difficult to determine who will buy real estate

Banks ask for more own funds

Since the beginning of the quarantine, Lithuanians planning to buy a home have faced a dilemma: buy or wait? When the economy stopped, real estate buying and selling transactions also stopped, real estate analysts began to talk about changes in real estate prices, and this discouraged some people from buying real estate. And some of those who did not yet intend to cancel their plans for new homes faced the problem that the bank, which had to grant a mortgage loan, had changed the terms of the loan discussed before the quarantine.

Ieva Šikšnytė-Brazienė, Sales Project Manager at Inreal Group, Defi Būstas says that the banks’ financing rules are currently very strict. According to her, banks finance at a lower interest rate.

“If until now the first home was financed up to 85%, now it is up to 80%. Second home: 60 to 80 percent. The third home is not financed at all,” says the interlocutor.

I. Šikšnytė-Brazienė notes that loans are not made to residents who are depressed, as well as to those who are currently unable to work.

“Banks also pay special attention to income and their average, so even if a customer is already working, but was previously inactive or unable to work, this may be a reason for the bank to refuse to grant a loan.” , emphasizes the sales of Inreal Group Project Manager.

The interlocutor emphasizes that even having a letter of guarantee from the bank is not a guarantee for the loan, since the client will be reviewed again before it is granted. The liquidity of the project and the reputation of the developer are also evaluated.

“Housing in experienced developer projects is funded at 85%. Completeness. Meanwhile, the market for newcomers to buildings requires 100 percent. Completeness. Most important thing to advise homebuyers today. it is to responsibly evaluate your opportunities now and in the near future, because banks are currently evaluating them with a magnifying glass, ”explains I. Šikšnytė-Brazienė.

It will be difficult for some sectors to obtain a loan

Antanas Kišūnas, Head of the Housing Department of the real estate company Ober-Haus, also talks about the stricter conditions of bank loans. According to him, banks are considered to tend to make loans to those buyers who have more of their own funds and can pay a higher initial payment.
“In the past, you were generally asked to pay 15% down payment and 85% bank funded, now you request 20 percent or more. Own funds. <...> They are also asking for higher contributions for the second property than before, ”says A. Kišūnas.

According to the interlocutor, among other things, banks assess not only the income of the customer who wants to obtain a loan, but also take into account the sector in which he works. Before giving an answer on the granting of a loan, banks, according to A. Kišūnas, not only take into account the general financial situation of the sector in which the applicant works, but also check whether other employees in this sector have not recently applied for a credit license. If there have been such cases, banks treat the employee in that sector as a potential lender in a very responsible manner.

“People who come from loans in those sectors are generally advised to wait. Those risk sectors are currently the catering sector, the beauty industry, tourism and aviation. Those people who are going to apply for loans even though their pre-quarantine income was not bad face problems. The banks do not say no, but they postpone the decisions and ask to come after quarantine, after two or three months, “explains the head of the Ober-Haus Housing Department, adding that during this period it is very realistic that a bank apply for a mortgage loan pledge of existing property.
On the other hand, according to A. Kišūnas, the granting of loans has not stopped. Sector representatives who have flourished during the quarantine are seizing their opportunities. Furthermore, according to the interlocutor, residents have learned the lessons of the 2009 crisis and are in no rush to commit to banks, hoping for clarity not only in the real estate market, but also in the sectors in which they work.

“People value their ability to repay a loan, they consider the future, what can happen in one case or another. People are interested in knowing if real estate pigs, people are waiting, developers are also waiting. Although there are no preconditions for a significant reduction of that property, ”says A. Kišūnas.

Conditions have not changed, but each case is being evaluated more closely.

Delfi Būstas, one of the largest banks in Lithuania, confirms that loan applications have decreased during the quarantine period. Sonata Gutauskaitė-Bubnelienė, director of retail banking at SEB Baltics, reports that about 40% of inquiries about new mortgage loans have recently been received. less than usual

“We note that some clients who already have a confirmed positive banking decision to grant a loan postpone signing the contract and wait until the situation is clearer in the market, others consult, are interested, but they do not do it because they want to wait and see how the situation unfolds. ” The volume of mortgage loans issued, as well as the number of customer inquiries about them, during quarantine decreased compared to the same period last year. For example, last April we issued housing loans for more than 32 million, and in the same period this year, for almost 22 million. Eur – t.y. a good third less ”, calculates S. Gutauskaitė-Bubnelienė.

According to the interviewee, the requirements to obtain a mortgage loan have not changed, but in the presence of a lot of uncertainty in the market, the individual situations of the clients are evaluated more closely. It is true that the bank does not currently name the riskiest sectors.

“When granting home loans, we carefully analyze the individual situation of each client, we take into account the sector in which the client is affected by the conditions and quarantine activities, we evaluate the sustainability of the client’s income, if he will be able to meet your financial obligations in an appropriate and timely manner. ” risk. We also draw customers’ attention to home price forecasts and expectations regarding their change, ”emphasizes S. Gutauskaitė-Bubnelienė.
It adds that the interest rate and other conditions to grant credit are, and continue to be, determined by the amount of the credit, the maturity, the evaluation of the financial capacity of the client, the individual credit risk, as well as the credit market, the conditions current financial market and bank financing. costs in the international capital market.

Loans have really fallen

Swedbank representative Saulius Abraškevičius also calculates the decrease in mortgage loan applications. He reports that, comparing the values ​​of the mortgage loans granted, in March of this year Swedbank granted home loans for 45 million. 63 million euros in the same period a year ago. that is, the difference is 28%.

“Since the beginning of the quarantine due to Covid-19, we have applied a deferment of payments to residents for loans with a total value of more than 100 million. In total, provisions are adjusted by approximately 3,700 units. Client contracts Most of them consist of home loans (60%), consumer finance reaches 36%, and the remaining 4% falls on leases This proportion has stabilized since the beginning of the quarantine and the error fluctuates only a small percentage ”, continues the interlocutor.

According to S. Abraškevičius, the conditions for granting mortgage loans from Swedbank are currently not reviewed and the process is the same as before.

“Pursuant to the provisions on responsible loans, the initial own contribution must be at least 15%. The total value of all financial liabilities cannot exceed 40%. Total monthly personal or family income. After receiving applications for residents to grant housing loans, we evaluate each application individually ”, emphasizes the interviewee.

Banks are evaluating the future economic situation

Real estate analysts, economists, and bankers advise residents to carefully consider their financial situation before applying for a mortgage. According to Vaidotas Šumskis, Chief Economist in the Macroprudential Analysis Division of the Bank of Lithuania, before making loans, banks also assess the greater likelihood that mortgage borrowers will lose their jobs and depreciate the home they buy and pledge as collateral for the Bank.

“During a period of uncertainty such as this one, the loan margin and down payment requirements may increase as borrower risk increases accordingly. With the spread of the virus and less economic constraints, the Activity in the housing market picks up, and bank claims on borrowers will decrease, “emphasizes the economist.

The interviewee continues that the Loan Regulation is currently in force for Responsible Loans, which establishes a general procedure for granting loans to the population and minimum requirements for borrowers. There are no plans to change them in the near future, as these provisions act more as a common standard for loans than as a means of stimulating or cooling the economy.

“Banks operating in Lithuania should adequately assess the risks of additional loans arising from the consequences of COVID-19 and quarantine, and pay due attention to the long-term business prospects of borrowers and credit risk. Banks should not apply a single rejection standard to all companies applying for loans, simply because of the deteriorating economic environment. “Many of the companies directly or indirectly affected by the quarantine have been solvent before the quarantine, but currently face temporary liquidity problems due to the temporary suspension of their operations or a temporary drop in demand,” explains the economist.

According to V. Šumskis, Senior Economist in the Macroprudential Analysis Division of the Bank of Lithuania, after the end of the quarantine, companies that have accumulated reserves and have a sustainable business model will resume operations, receive income and promote economic recovery, Therefore, it is important that liquidity support loans. This would allow these companies to maintain business continuity, avoiding further losses for both the financial system and the economy.

“Especially since loan guarantees and other government-provided measures provide an opportunity to do so with less risk. In addition, banks must also adequately assess the potential of those companies that want to successfully reorient their activities due to quarantine and finance their development opportunities, since the activities of these companies help the economy to operate faster in quarantine conditions, “predicts the economist.