Translated with DeepL.com
On 15 February, the Saeima adopted in final reading amendments to four laws to facilitate consumers' ability to remortgage, while promoting competition among credit providers, developing credit institutions' solutions for mortgage borrowers and reducing high mortgage rates.
"Interest rates in Latvia and the Baltic States as a whole have been among the highest in the euro area for a long time, largely due to weak competition in the banking sector. Competition has also not been fostered by the complex and costly mortgage remortgage process, which has so far largely been designed in the interests of the banks. The changes to the law will significantly reduce the administrative and financial burden on mortgage borrowers by lowering the barriers to remortgaging, including the costs, which have so far been disproportionately high," said Viktors Valainis, Minister of the Economy.
The amendments to the Law on Consumer Rights Protection, the Law on Credit Institutions, the Law on Notariat and the Law on Insurance Contract adopted by the Parliament do not envisage the creation of a new mechanism or any radical changes to the existing re-crediting process, but they do envisage several significant changes and facilitations that will reduce the existing barriers to re-crediting, including costs, and make the re-crediting process easier for consumers.
The adoption of the draft laws has led to a significant reduction in the cost of re-crediting for the consumer, e.g. if the mortgage loan amount is EUR 250 000, the cost of re-crediting will decrease from EUR 3 500 to EUR 2 500; if the mortgage loan amount is EUR 100 000, the cost of re-crediting will decrease by half from around EUR 2 000 to EUR 1 000; while if the mortgage loan amount is EUR 50 000, the cost of re-crediting will decrease threefold from around EUR 1 500 to EUR 500. These calculations are made on the assumption that the new lender will provide for compensation or fees for the provision of the mortgage loan. In the absence of such a requirement, the cost would fall even further, to around €50 for a remortgage.
The remortgaging process will now take no more than two months and will be easier for the consumer, who will have to visit the potential lender, evaluate their offer, conclude a new mortgage contract and remotely sign the request for mortgage assignment in favour of the new lender at a notary public's office. The whole process can also be carried out remotely.
Mortgage credit providers will now be able to advertise their services and compete more actively for mortgage loans.
The amendments to the Consumer Protection Act provide that the consumer will not be subject to a remortgage fee or compensation (except in the case of a fixed-rate loan, where compensation is provided for in an EU Directive). The fee for drawing up a new credit agreement and/or granting a new credit cannot exceed 1% of the amount of the new mortgage loan. The consumer has the right to split the compensation into three instalments. The amount of such compensation will not be higher than the fee charged by the acquiring creditor at the time for the provision of new mortgage credit. At the same time, in order to promote competition, advertising restrictions for mortgage loans, loans for the construction of immovable property or loans for energy efficiency improvements have been abolished. It also defines mortgage remortgaging and sets out the rights and obligations of the previous creditor, the new creditor and the consumer. The exact procedure will be laid down in Cabinet Regulation No 691 "Regulations on consumer credit".
Amendments to the Credit Institutions Act will allow a credit institution to provide undisclosed information to another credit institution or creditor if this information is needed for mortgage remortgaging. This information will be necessary for the new creditor to make its offer to the consumer.
Amendments to the Notariat Law will ensure that non-bank creditors can also submit a notification to a sworn notary electronically via a data submission channel established on the website of the Latvian Council of Notaries.
Amendments to the Insurance Contract Law provide that in case of mortgage remortgaging, the consumer will have the right to unilaterally terminate the existing real estate insurance contract. The amendments are necessary to avoid additional costs for the consumer in the process of re-mortgaging.