Borrower-based macroprudential measures aim to decrease the probability of the borrower taking on an excessive debt burden and being unable to make payments on loans as well as to reduce the borrower's losses if the borrower still becomes insolvent.
Borrower-based measures:
- affect lending standards and the range of potential borrowers, thus contributing to responsible lending and borrowing throughout the whole financial cycle;
- increase the resilience of borrowers and lenders to economic shocks;
- provides long-term financial stability gains: limits the formation of imbalances and the probability of a crisis, improves loan portfolio quality, decreases losses in case of a crisis and the negative impact on consumption and the economy.
Several borrower-based measures are established in Latvia:
| Measure | Rate | Effective date and regulatory act | Scope |
|
Loan-to-value (LTV) ratio |
90% |
12.06.2007 (law adopted on 17.05.2007) |
All new loans to consumers exceeding 100 minimum wages and secured by a mortgage on real estate All consumer lenders |
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95% for loans secured by a state guarantee in accordance with the Law on Assistance in Solving Apartment Matters |
25.09.2014 (law adopted on 18.09.2014) |
All new loans to consumers exceeding 100 minimum wages and secured by a mortgage on real estate and state guarantee in accordance with the Law on Assistance in Solving Apartment Matters All consumer lenders |
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70% for buy-to-let housing loans or other housing loans generating income as a result of real estate activities (the tolerance margin may not exceed 10% of the institution's newly granted loans to natural persons in a quarter)** |
01.06.2020 (regulation adopted on 27.11.2019) Amendments in Latvijas Banka’s “Regulation on Credit Risk Management” ** are in force as of 01.01.2024 (adopted on 18.12.2023) |
New loans to consumers (natural persons) Credit institutions and investment firms as well as credit institutions registered in other Member States that are authorised to offer financial services in the Republic of Latvia |
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Debt service-to-income (DSTI) (the total monthly amount of debt payments to financial institutions to the borrower's monthly net income) |
40% 45%** to loans for obtaining energy efficient housing |
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Debt-to-income (DTI) ratio |
6 times 8 times** to loans for obtaining energy efficient housing |
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Loan maturity limit |
30 years for housing loans, 7 years for consumer loans |
Additional information
- Consumer Rights Protection Law
- Latvijas Banka’s "Regulation on Credit Risk Management"
- Implementation of new borrower-based measures – an important addition to Latvia's macroprudential policy tools (Latvijas Banka's Financial Stability Report 2020)
- Step closer to sustainable consumer lending (available in Latvian)
- Considerations of introducing limits on the borrower debt burden (available in Latvian)