Deciding on a 50% discount on mortgage interest rates will affect future lending

When politicians decide on a 50% discount for mortgage loan interest rates, crediting in the future will be affected, Edgars Pastars, senior legal advisor of the Financial Industry Association, said in an interview to the TV3 program “900 seconds” on Monday. He noted that when making amendments to the Law on the Protection of Consumer Rights and providing for the application of a 50% discount to the consolidated interest rates of mortgage loans for one year, there are significant risks of legal proceedings. “It is not possible to reduce the prices of previously concluded contracts in any sector. If we would like to regulate in the future how interest rates are formed, how variable they are, that is another issue we are open to discussion,” Pastor said. At the same time, he emphasized that even in case of such legal proceedings, banks will not take action against borrowers. “Borrowers can be calm – their home is safe. Banks do not aim to evict them from their homes, even more so to recover losses for unjustified, populist politicians’ decisions. Politicians are responsible for them,” Pastor said. At the same time, he emphasized that such regulation will affect lending in the future, including that banks will have to price such risk in future contracts. “Not only from the legal side, but also from the economic side, it will have to be priced in future rates. Both banks and other companies and investors will have to expect that politicians will have a tendency to adjust prices that have been previously agreed every time during a crisis, moreover, which rise not because the businessman builds them, but because another authority – the European Central Bank – builds them,” Pastars said. He also pointed out that Latvia could discuss whether in the future banks should offer fewer contracts with a variable rate, but more contracts with a fixed interest rate. At the same time, the representative of the association emphasized that until now borrowers have benefited from contracts with variable rates. It has already been announced that on October 4, the Budget and Finance (Tax) Commission of the Saeima supported the amendments to the Law on the Protection of Consumer Rights intended for the protection of mortgage borrowers, which provides for the application of a 50% discount to the consolidated interest rates of mortgage loans for one year. After a year, the Budget Commission will wait for a report on the effectiveness of this norm and evaluate whether the reduced rate should be extended for another year. The support will be applied to those borrowers whose maximum credit balance is not more than 250,000 euros. Currently, the draft law provides that the support can be received by a person for whom it is the only mortgage loan, but the deputies promise to discuss in the next readings whether the support could be applied to the mortgage loan for the only home. The support will not be intended for those who rent out the loaned housing.

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