The information was translated using the ChatGPT service.
In the Cabinet of Ministers meeting on December 12th of this year, amendments were supported in four laws - the Consumer Rights Protection Law, Credit Institution Law, Notarial Law, and Insurance Contract Law. The purpose of the package is to reduce obstacles to refinancing, facilitate consumer opportunities to refinance mortgage loans, thereby promoting customer mobility and competition among lenders, developing solutions offered by credit institutions to mortgage loan borrowers, and reducing high mortgage interest rates. The amendments in the laws still need to be approved by the Parliament.
The interest rates on loans in Latvia and the Baltic States have been among the highest in the eurozone for a long time, largely due to weak competition in the banking sector. The complex and costly mortgage loan refinancing process, largely designed in favor of banks, has not fostered competition either. With the proposed legislative changes, a significant reduction in administrative and financial burden for mortgage loan borrowers will be achieved, reducing obstacles to refinancing, including costs, which have been disproportionately high so far," emphasizes Minister of Economy Viktors Valainis.
Upon approval by the Parliament, significant reduction in refinancing costs for consumers will be achieved. For example, if the mortgage loan amount is 250,000 EUR, refinancing costs will decrease from 3,500 EUR to 2,500 EUR; if the mortgage loan amount is 100,000 EUR, refinancing costs will be halved - from approximately 2,000 EUR to 1,000 EUR, and if the mortgage loan amount is 50,000 EUR, refinancing costs will be reduced threefold - from approximately 1,500 EUR to 500 EUR. These calculations are made under the condition that the new lender provides compensation or a commission fee for the issuance of the mortgage loan. If such requirements are not present, the costs will be further reduced, with refinancing costing as little as around 50 EUR.
The refinancing process will take no more than 2 months, and for the consumer, it will become simpler - they will need to contact a potential lender, evaluate their offer, conclude a new mortgage agreement, and remotely authenticate their signature on the amendment to the collateral rights in favor of the new lender through a sworn notary. The entire process can be carried out remotely.
Mortgage lenders will now be able to advertise their services and compete more actively for mortgage loans. The proposed legislative changes do not introduce a new mechanism or make radical changes to the existing refinancing process, but they provide several significant changes and facilitations that reduce existing obstacles to refinancing, including costs, and make the refinancing process easier for consumers.
Amendments in the Consumer Rights Protection Law stipulate that consumers cannot be charged a fee for refinancing or compensation (except in the case of a fixed interest rate loan, where compensation is specified in the EU directive). The fee for the preparation and/or issuance of the new mortgage loan cannot be higher than 1% of the new mortgage loan amount. Consumers have the right to divide this compensation into three payments. The amount of such compensation must not exceed the fee that the acquiring lender charges for the issuance of a new mortgage loan at the time. Advertising restrictions for mortgage loans, construction loans, or loans for improving energy efficiency are also lifted to promote competition. The definition of mortgage loan refinancing, as well as the rights and obligations of the previous lender, the new lender, and the consumer, are also specified. The precise procedure will be determined in the Cabinet of Ministers Regulation No. 691 "Regulations on Consumer Lending."
Amendments in the Credit Institution Law provide an opportunity for a credit institution to provide non-disclosed information to another credit institution or lender if this information is necessary for mortgage loan refinancing. This information will be necessary for the new lender to present their offer to the consumer.
Amendments in the Notarial Law provide the possibility for non-bank lenders to submit a notification to a sworn notary electronically through the website of the Latvian Sworn Notaries Council's data submission channel.
Amendments in the Insurance Contract Law specify that in the case of mortgage loan refinancing, consumers will have the right to unilaterally terminate the existing real estate insurance contract. These amendments are necessary to prevent additional costs for consumers in the refinancing process.
The legislative package was developed by a working group established by the Prime Minister's order on September 29th of this year, which involved representatives from relevant institutions and the lending services sector. The solution has been accepted by all parties involved.