Experts warn of unlimited desire to buy a home: by doing so, people dig a well for themselves

Residents value their options

The coronavirus pandemic and quarantine have affected the global economy and the financial situation of many people. As a result, some people who planned to take out a loan and buy a home had to either postpone these plans or accept the increased terms of bank loans.

Arnoldas Antanavičius, head of the public institution Realdata, a real estate analyst, says that currently the information on the policy of bank loans in the public space is varied. Representatives of the banks themselves claim that both before and during quarantine and today, the chances of each person seeking a home loan are individually assessed, and the number of loans issued has been virtually unchanged. However, according to A. Antanavičius, statistics show that the number of loans issued is less.

“If we look at the statistics, in June, around 20-25 percent. Fewer loans were issued. It is about whether people are asking for fewer loans because banks are still adjusting the terms of issuance, or because people’s appetite is decreasing, maybe someone has lost income, quarantine has rectified the situation. On the other hand, the decrease in real estate buying and selling transactions in Lithuania is now similar, people may value their opportunities more “, consider A. Antanavičius.

If you have not received a loan from a bank, apply elsewhere

Those who have not received a mortgage from the bank and cannot give up plans to buy their own home, turn to other mortgage lending institutions. As Delfi Būstas informs Lietuvos bankas, any legal entity, in other words, a company or company that meets the specified conditions and is included in the public list of creditors of the Bank of Lithuania, is entitled to make loans. In other words, housing credit in Lithuania can be provided by commercial banks, credit unions and other legal entities that are included in the Public List of Creditors maintained by the Bank of Lithuania.

“A creditor operating in accordance with the Real Estate Credit Act of the Republic of Lithuania is a person, except a natural person and a non-profit legal person, who provides or undertakes to provide credit for commercial purposes. A person has the right to participate in credit activities only when placed on the public list of creditors by the supervisory authority The person who intends to carry out such activity is subject to the following requirements: Participants of the creditor must have an impeccable reputation; the manager and members of the governing body are reputable and have the qualifications and experience to ensure proper performance of their duties; the creditor must have passed the creditworthiness assessment and responsible lending standards of the borrowers, who would establish the credit solvency assessment procedures company and would specify the information on the basis of which the credit solvency assessment is carried out, and would comply with them when carrying out credit activities ”, explains Lietuvos Bankas, which implements the supervisory credit of the awarding agencies.

According to real estate analyst A. Antanavičius, when banks don’t make home loans, residents generally apply for credit unions. This, according to the interlocutor, can be a temporary alternative to obtain credit, but in this case, a person must evaluate his financial capabilities very well, because credit unions have higher loan rates.

“People can choose another plan. For example, at first you borrow from a credit union and after a year or two refinances in a bank when the situation in the labor market clears up. Of course, credit unions have higher margins, so a person has to evaluate their options. If a resident takes a loan from a credit union and plans to refinance after a few years, but the situation changes and the bank no longer provides a loan, then he may be in a difficult situation, because it is expensive to grant a loan and there is no possibility to get another loan. This is already threatening financial losses ”, explains the interlocutor.

Borrow in other terms

Marius Janson, president of the Association for Finance and Credit Administration, also talks about the risks when a resident does not get a loan from a bank due to an unsatisfactory financial situation, but is still looking for other ways to get a mortgage loan. According to him, if a resident does not receive a loan from banks, where the interest rate is 2-3 percent. It is not recommended to look for other alternatives to mortgage credit, generally even more expensive.

“As for credit unions, the loan margin is 4-5% and, in more risky cases, 6%. When the interest rate in the euro interbank market begins to rise (it is currently negative – ed Past), the loan rates can increase up to 8% ”, explains the expert.

In other words, perhaps the biggest difference between banks, credit unions, and other institutions that can lend for housing is the margin. In banks it can be from 2 to 3 percent, in credit unions: from 4 to 5 percent. or more. If a loan is issued with a variable interest rate (after 2017, after the entry into force of the European Union directive), the interest rate on loans is practically always variable, with some exceptions) a part The variable contributes to the margin, the aforementioned interbank market rate in euros, which is currently negative but may grow in the future, and the borrower would pay a correspondingly higher monthly loan fee.

M. Janson, based on the rates mentioned above, calculates that if the mortgage loan is 100 thousand. 370 euros a month would be paid in the bank and 537 euros in the credit union. If the interest on the loan paid by the resident increases by 3%, then the loan will cost a person 5% in total at the bank. and your monthly contribution will be € 537. The credit union, meanwhile, would already have to pay € 734 under the same circumstances.

“It just came to our attention then. The rules for responsible borrowing are apparently more appropriate for banks where people borrow 2-3 percent. Interest. The bank is looking at whether the person will be able to repay the loan if the rate of Interest rises to 5 percent. And loans are issued by banks accordingly. And in credit unions, the lowest echelon immediately is 5 percent. It turns out that people are vulnerable. And so, those people who they are financial illiterates dig a well for themselves ”, emphasizes the interlocutor.

The home loan, as already mentioned, is also possible from other institutions licensed for loans. However, in most cases, according to Janson, they charge even higher mortgage rates. They can reach 8-11 percent. and many more.

“I don’t know what has to happen to borrow like this. But people really short-sighted sometimes think about where to borrow today, and everyone hopes someday to be able to refinance in a bank or credit union, but if their credit history is poor, refinancing It doesn’t work for them. This is a very high interest rate and people do poorly when they take out mortgages. You can lose your home quickly, “says the president of the Association for Finance and Credit Management.

Council of the Association of Members of Credit Unions of Lithuania: we offer a loan opportunity for all

Despite criticism arrows directed at credit unions, Ernesta Ramaškaitė, chairman of the Council of the Association of Members of the Credit Union of Lithuania, says that today unions represent standard banking and its principles, i.e. . provides basic financial services such as payment services, there is the possibility of opening a checking, savings or term account, loans to individuals, companies and agriculture, payment cards, e. banking.

“Service availability, that is, the issue of capacity and availability is increasingly important. Large market players are reducing the number of branches and, due to the pandemic, some customers have lost access to services due to policies tighter credit unions have therefore been further strengthened in terms of home loans Due to the individual approach to the situation of each client, unions can offer unique solutions that meet the expectations of customers, “says E. Ramaškaitė.

It continues that unions make a strong contribution to the financing of mortgage loans for people who have small family businesses, are self-employed, work abroad, have different types of income, middle and low income, and want loans for construction jobs. .

“It is also important to mention that most unions did not change their lending policy due to the increase in the participation of clients’ own funds, that is … We heard from our clients that not all credit institutions behaved this way ”, emphasizes the interlocutor.

According to the President of the Council of the Association of Members of the Lithuanian Credit Union, the decision to apply for a mortgage loan from a particular credit institution is determined by several components: the size of the financing index, the possibility of carrying out work construction and installation.

“Currently, union positions are strengthening as union services become available to a broader range of clients, who may no longer want to finance other market players, interest rate differentials are have drastically reduced The problem of equity participation has arisen. Taking into account the expectations of customers, taking the time to analyze the situation and make an individual decision, unions become a responsible and long-term partner “, says E. Ramaškaitė.

The Bank of Lithuania warns of risks

Each resident is free to decide when and where to borrow money for housing. Even when taking a loan from a bank, a person must assess their financial ability to pay contributions, even if they increase. The buyer should also think about their financial resources and risks when seeking help from credit unions or other institutions that are licensed to provide mortgages.

The Bank of Lithuania emphasizes that when concluding any type of agreement, consumers should be careful and ask if the company that offers financial services is licensed and supervised. First, it should be noted that all entities with the right to grant loans (banks, credit unions and other legal entities) have the same requirements for loan activities. This means that all creditors must follow the same legislation that governs credit activities, must assess the consumer’s creditworthiness before concluding a consumer credit agreement, and so on. Therefore, the rules for granting credit and evaluating credit quality, as well as the supervision of said service, are the same and do not differ according to the creditor.

“Before applying for a loan, it is advisable for everyone to carefully assess their current needs and their current financial situation and how these needs and, consequently, the financial situation will change in the future. The law gives every potential borrower every opportunity to negotiate. both interest rates and credit terms. Before beginning any negotiation, it is important to observe as closely as possible what credit conditions prevail in the market, i – receive as many offers as possible from different financial institutions, “he emphasizes. Lietuvos Bankas.

The Authority adds that in this way, with a good knowledge of your personal situation and a responsible consideration of the possibilities of indebtedness, you can make an appropriate credit decision choosing the lender that offers the most acceptable terms to the specific borrower.

“It is important to mention that before concluding a credit agreement, the consumer must receive standard information about the credit. This information must include, among other information required by law, the interest rate, the total cost of credit. Lenders have take into account many factors when establishing a margin of interest for a particular consumer. As creditors can offer different interest rates and terms of the credit agreement, it would be worth collecting more offers and choosing between several creditors, “added the information sent by the Bank of Lithuania.