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 June 2007 (law adopted on 17 May 2007) Consumer Rights Protection Law |
All new loans to consumers exceeding 100 minimum wages and secured by a mortgage on real estate All consumer lenders |
| 95% for loans secured by a state guarantee in accordance with the Law on Assistance in Solving Apartment Matters |
25 September 2014 (law adopted on 18 September 2014) Consumer Rights Protection Law |
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 | |
| 70% for buy-to-let housing loans or other housing loans generating income as a result of real estate activities; moreover, only up to 70% of the expected income from the real estate are taken into account 70% for housing loans, if the borrower's income from real estate exceeds 20% of the total income |
1 June 2020 (regulation adopted on 27 November 2019) Regulation of the Financial and Capital Market Commission "Regulation on Credit Risk Management'' |
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 | |
| Debt service-to-income (DSTI) (the total monthly amount of debt payments to financial institutions to the borrower's monthly net income) | 40% (the tolerance margin may not exceed 10% of the institution's newly granted loans to natural persons in a quarter) |
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| Debt-to-income (DTI) ratio | 6 times (the tolerance margin may not exceed 10% of the institution's newly granted loans to natural persons in a quarter) |
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| Loan maturity limit | 30 years for housing loans, 7 years for consumer loans (the tolerance margin may not exceed 10% of the institution's newly granted loans to natural persons in a quarter) |
Additional information
Consumer Rights Protection Law
Regulation of the Financial and Capital Market Commission "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)