On Thursday, the 15th of February, the Latvian Saeima passed in the final reading amendments to the Consumer Rights Protection Law, Insurance Contract Law, Credit Institution Law and Notariate Law prepared by the Ministry of Economy. The goal of these amendments to simplifying mortgage loan re-crediting between banks.
The ministry intends to promote customer mobility and competition between lenders, developing credit institutions’ solutions for mortgage loan takers and reducing mortgage loan rates in the process, which are some of the highest in Europe at the moment.
The ministry estimates that after the adoption of amendments the re-crediting process should take no more than two months. The procedure itself will also become simpler for consumers – they will have to turn to a potential lender, consider their offer, sign a new mortgage loan contract and remotely certify the signature of the request for corroboration of the pledge rights in favour of the new creditor to a sworn notary. The whole process will be done remotely.
Amendments to the Consumer Rights Protection Law state that a consumer cannot be charged a re-crediting fee or compensation. The fee for drawing up a new loan agreement or issuing a credit will not be higher than 1% of the amount of the new mortgage loan. The consumer has the right to divide this compensation into three payments. The amount of such a compensation shall not be higher than the fee applied by the acquiring credit provider for the issuance of new mortgage loans at that time.
The ministry notes that amendments to regulations are intended to achieve a significant drop if a re-crediting fee for consumers.
For example, if the amount of the mortgage loan is EUR 250 000, the cost of re-crediting is reduced from EUR 3 500 to EUR 2 500, if the amount of the mortgage loan is EUR 100 000, the cost of re-crediting is reduced from about EUR 2 000 to EUR 1 000, while if the amount of the mortgage loan is EUR 50 000, the cost of re-crediting is reduced three times – from about EUR 1 500 to EUR 500.
These estimates were made under the condition that the new lender provides a compensation or commission for the issuance of a mortgage loan. If this requirement is not met, costs will go down by more – re-crediting of mortgage loans will cost about EUR 50.
The ministry also notes that mortgage lending service providers will be able to advertise services and compete with each other for mortgage loans. The changes to laws do not provide for the creation of any new mechanism or any cardinal changes to the existing re-crediting procedure. Nevertheless, they do provide significant changes and benefits that will help reduce existing re-crediting obstacles, as well as make the re-crediting procedure simpler for consumers.
Previously the Budget and Finance Committee was informed by the Ministry of Economy’s Domestica Market Department Competition, Commerce and Consumer Rights Office head Didzis Brūklītis that the biggest benefit from this will be the sharp reduction of mortgage loan re-crediting costs.
The passed amendments also abolish the existing re-crediting fee of EUR 400 – EUR 600.
The new mortgage issuance fee, which is currently at 1% of the loan size, will not be allowed to exceed 1%.
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