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Home - Expert: prices for housing in Latvia will fall, but it will be more difficult to buy it
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Expert: prices for housing in Latvia will fall, but it will be more difficult to buy it

Lending market in Latvia is very risky, banks do not have the right to vote, so they are voting with their feet, commenting on the situation with the amendments to the Law on Insolvency and the introduction of the principle of “the keys on the table”, said a consultant of the Association of Commercial Banks of Latvia Casimir Shlyakota for radio Baltcom.

Loans based on the conditions of the keys on the table are issued in the United States, when in the course of insolvency of the debtor his housing is sold and after he gives his keys, the remaining obligations of the debtor will be redeemed. This is the only country in the world, practising of such loans, but there is nuance – it's not only the right of the borrower, but also the right of the bank to demand the keys, said Shlyakota, emphasizing that in such a situation the more American banks demanded the keys, the more was the falling of the price of real estate.

The consultant is sure if the president of Latvia will declare these amendments, banks will increase initial fees for mortgages, which are now quite large.In rich society people can pay 30-40 percent as initial fee, but it is difficult to save that kind of money for our residents. According to our analysis, there are 700.000 households in Latvia, 100.000 of them would like to improve conditions, but only 5-6 thousand say that they can collect enough money for initial fee. So loans are issued to those 5-6 thousand, said Shlyakota.

In opinion to the consultant, the situation with a mortgage affects the fact that banks offer very low interest rates on deposits. With the help of lower rates the banks show that it is not necessary to put money on deposit, they have nothing to lend. I am m not saying that it will be necessary to pay extra for that banks which keep your money, but it is also possible as, for example, in Japan, thinks Shlyakota, who believes that essentially there is no place to invest in Latvia: exchange is weakly developed, while interest rates on public bonds are low.

The consultant predicts that prices in the housing market may soon fall, as the housing stock becomes old, but the new one is not created - it requires a buyer. "Housing, which is far from Riga, already has fallen in price. The housing mortgage outside the region of Riga in general will not be available soon, as the bank will have difficulties to sell it. Trend will lead to the fact that people, who will not be able to buy housing in Latvia, will leave the country", considers Shlyakota.

Shlyakota emphasized that lending of businesses or residents is closely related. A number of credits for residents are reduced and lending of business reduces as well. At the same time the consultant believes that young businessmen do not have any chance for a loan at all. "There are almost no banks, which are willing to lend to such risks in Latvia. I have hope for buyers of Citadele, which could offer such kinds of loans. If not, then entrepreneurs will be able to erect a monument to the current government, the expert concluded.

We want to remind that Swedbank and SEB banka are the largest banks in Latvia in terms of mortgage loans suspended their participation in the state guarantee program of housing for young families.

This decision was taken due to amendments to the Law on Insolvency approved by the Seima, providing the introduction of the principle of "the keys on the table" with respect to single housing of debtors, which is the pledge for the loan.

At the same time, the Association of Commercial Banks of Latvia (ACBL) appealed to President Andris Berzins not to declare the amendments to the Law on Insolvency, providing the introduction of the principle of the keys on the table.

ACBL believes that this rule will essentially complicate the issue of mortgage loans, hamper the development of the national economy and improving the living conditions of people, as well as promoting the development of „culture of non-payments.