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According to the press release, in January this year, the portfolio of mortgage loans issued by the country’s banks amounted to 9,230 million. euros. According to its growth rate, which reached 9.3%, Lithuania ranked first among the countries of the European Union. When evaluating the trends of Lithuania’s home loan portfolio in recent years, it is characterized by steady growth; for comparison, a year ago the growth rate was 8.9 percent.
The Regulation on Responsible Lending approved by the Bank of Lithuania provides that financial institutions assess whether a person can get a loan and repay it later. This is a set of rules that banks and other credit institutions must follow when deciding to grant a loan. The regulations include requirements for the evaluation of the minimum sustainable income, the relationship between the credit contributions and the income, the maximum duration of the credit, the relationship between the value of the mortgaged properties and the amount of the credit.
“The requirements of the responsible lending regulations are like the lowest standard that a person who intends to take out a loan must meet. In no way do they affirm that the valuation should be based solely on the criteria provided for in the regulations, on the contrary, they encourage the bank to make an individual decision in each case, because the situation of each client is different ”. emphasized Dr. Eivilė Čipkutė, president of the LBA.
Income: transparent and predictable
Responsible lending regulations stipulate that credit institutions must assess the income received by a person for at least the last 6 months.
The bank usually requests documents about the funds received over a longer period of time, to ensure that the client’s income is sustainable and that the new loan does not worsen their financial situation.
Sustainable income is income that you receive consistently, and your industry, experience, or multiple sources of income indicate that you will be able to maintain a similar level of finances in the future.
Therefore, it is useful to provide the bank with documents about all your income, in case you receive them not only from, for example, paid work, but also from individual activities or rental of real estate. They must be formalized and declared.
To improve life, not to make it worse.
When applying for a loan from a bank, two main things will be evaluated: the initial contribution available and the relationship between a person’s (family) income and financial liabilities.
When buying a house under new construction, the general rule for the initial contribution – the share of own funds should be at least 15%. prices or values of the home purchased. However, buying an older home may require a higher down payment. You will also have to bring more of your own money if this is not the first home you want to buy with bank financing.
A person cannot allocate more than 40% of all available loans per month. of total revenue. This minimizes the risk that, as a result of a change in life circumstances, illness or loss of one of your sources of income, you will no longer be able to meet your obligations or your quality of life will deteriorate.
Therefore, evaluate the existing liabilities, if they represent approximately 40%. your income, a new loan would only become an additional financial burden for you.
The responsible lending provisions provide an exemption for creditors to grant a loan to households if their liabilities do not exceed 60%. monthly income. However, such an exception applies in cases where the resident receives a particularly high income and can demonstrate that he will maintain his current level in the future, and 40%. the income will be fully sufficient for your quality of life.
The share of these loans in recently issued loan portfolios by banks cannot exceed 5% per year, and experience shows that banks rarely use this exemption. It is risky to allocate more than half of the monthly income to the payment of loans; in the event of illness, the loss of one of the sources of income would be a significant financial burden.
A reflection of a trustworthy customer is a good credit history
The possibility of obtaining a new loan also depends on how you have managed your liabilities in the past. If you have paid your installments on time, are not in arrears with creditors, utilities or other service providers, it is a sign to the bank that you are a reliable borrower. You can check your credit history yourself before requesting it at the bank, this service is provided by the Creditinfo Lietuva company.
LBA experts recall that the new loan should improve the quality of life, but not worsen it. It is always necessary to make a good assessment of whether you really need the purchase you want to make with the loan funds at this time. In addition, it is advisable to save so that you always have money for contingencies when you need it.
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