Budget Committee agrees in principle on 50% reduction in mortgage interest rates

RIGA - Saeima Budget and Finance Committee on Tuesday agreed in principle on a 50 percent reduction in mortgage interest rates for one year.

The Budget and Finance Committee plans to vote on the bill to protect mortgage borrowers on Wednesday, in order to forward it to Saeima for consideration in three readings.

In the meantime, the bill has not yet been drafted, and there no agreement has been reached yet whether it will be a new law or an amendment to an existing law.

During the meeting, the committee's chairman Janis Reirs (New Unity) explained that the reduced interest rates would be in force for one year. A year later, the Budget and Finance Committee assess whether the measure has been effective and whether to extend it for another year.

The committee also proposes that the support measure apply to borrowers with a maximum loan balance of no more than EUR 250,000.

Reirs stressed that the support should apply to standard loans without arrears and that support received should in no way affect the reputation of borrowers.

"Support should be both targeted and as simple as possible. I do not believe banks. If the criteria are complex, banks will find every detail and interpretation that will not be favorable to borrowers," said Reirs.

He also stressed that people must be saved and that the situation of 2009-2010, when banks were bailed out, must not happen again.

Aija Zitcere, Director of the Financial Market Policy Department at the Finance Ministry, told the committee that the EUR 250,000 threshold would cover 97.6 percent of mortgages by amount and 99.8 percent by number.

Zitcere also drew the committee's attention to the fact that applying a 50 percent reduction in loan interest rates to all borrowers could be interpreted as significant state intervention in the market. This could have a negative impact on the market as well as on future investments.

Kalvis Engizers, advisor to Justice Minister Inese Libina-Egnere (New Unity), said that creditors had a right to private property, right to do business on the basis of a license, and underlined the principle of legitimate expectations.

At the same time, Engizers pointed out that the legitimate aims of the bill could be the protection of consumers and public welfare, which could outweigh the rights of lenders.