One of the biggest problems hindering the development of lending in Latvia is the shadow economy and the so-called gray salaries. “This is the most common reason why the borrower’s desires do not coincide with his capabilities. In this situation, the borrower most likely thinks that his household budget allows him to take on additional long-term obligations, however, in reality, what the borrower sees in his “wallet” differs significantly from what the bank sees on his accounts.
A bank can objectively evaluate a borrower’s ability to repay a loan only on the basis of understandable and documented income. In addition, gray salary recipients also practically cannot claim any social guarantees. This further increases the risks associated with repaying a loan in the long run. Given all these circumstances, you need to understand that getting a loan that meets your needs with an opaque income structure is very problematic, ”explains A. Balzers.
The period for which the bank estimates the income of the potential borrower, as a rule, is six months, but in some cases, for example, with variable incomes, this period may be increased.
Not enough money for a down payment
Another serious reason why people are forced to put off buying a home is the lack or complete lack of money for a down payment. “Typically, the size of the down payment when applying for a mortgage loan ranges from 15-20%. If we assume that the apartment costs 60,000 dollars, then the amount that needs to be collected on a down payment is 9,000-12,000 dollars. In addition, the borrower needs to reckon with other expenses that are associated with both obtaining a loan and concluding a contract of sale (notary, taxes, etc.). It is very difficult to collect such an amount of money in a short period of time, especially if you have to pay for renting an apartment at the same time, ”the bank expert commented on the real situation.
Today, the State Good Finance Support Program, designed for families with children, helps to partially solve the problem. By applying for participation in this program, a potential borrower can get a mortgage loan for the purchase or construction of housing with a significantly lower down payment – from 5% to 10%. This means that in the above situation, a young family will need between 3,000 and 6,000 dollars for a down payment. With stable incomes and competent budget planning, this is a very real amount.
However, this support is available only to a small part of the population, therefore it is very important that the state, for its part, create new opportunities that would help make the program accessible to a wider circle of residents.
Negative credit history
The relationship between the lender and the borrower is built on mutual trust, therefore, when issuing a loan, the bank must understand how the potential borrower had previously related to his obligatory payments. Consequently, unpaid bills and overdue loan payments can also become a reason for the refusal to issue a mortgage loan.
Even if you have delayed a couple of payments due to elementary carelessness, this may mean that in the future the interest rate on the loan will be higher for you. Therefore, it is important to remember that credit history matters, and you should be extremely responsible for your payments.
According to the expert, banks are also alarmed by the frequent appeal of the potential borrower to “quick loans”. True, a “quick loan” alone cannot be a reason for failure. “Frequent appeal to“ quick loans ”is rather a signal that the borrower has too big obligations, can’t cope with obligatory payments or receives the already mentioned gray salary. Otherwise, it is difficult to explain why a person chooses to borrow on conditions that are ten times worse than banking. Especially considering that today a consumer loan can be conveniently taken at a bank, and it takes just 15-20 minutes to draw it up in a mobile application, ”says Ainars Balzers.
What should be the salary to take a loan, or what is a “balanced budget”?
It is believed that a balanced budget is when the monthly loan payments do not exceed 30-40% of the monthly family income. “This indicator can be a starting point, but not a single solution for everyone, because, for example, receiving high incomes, a person can spend a more impressive amount on a monthly basis, and there will be a lot of people with low incomes and 20%. Therefore, the solvency of a potential borrower should be assessed in the general context of its income. In my opinion, a positive account balance at the end of the month is the amount that a person can afford to pay on a loan. Based on this, it is possible to plan the loan amount as well, ”the bank expert believes.
An assessment of a client’s ability to repay a long-term loan is very important and must be carried out very carefully. The Bank does this not only to evaluate its own credit risk but also to help assess the risks to the client. “A man takes money from a bank, but he will have to give it his own, respectively, both sides take risks. That is why the assessment of long-term solvency is invaluable – both for those who lend money and for those who borrow this money.
The bank in this area has vast experience and, in my opinion, this is in the hands of the borrower himself. If I’m not a mechanic, I won’t be able to repair the car myself – the situation with loans can be described in a similar way, ”Ainars Balcers explains, emphasizing that the so-called airbag is also of great importance in assessing a client’s creditworthiness. “It must be borne in mind that in 20-30 years the situation can change, for example, a person can decrease or increase income, interest rates can rise – all these aspects are of great importance.”
Maybe just rent?
Today in the world it’s becoming more popular not to buy but to rent a house. This allows you to adapt to different situations and, if necessary, easily change your place of residence. “Own housing is associated with security and stability. With the advent of children in the family, this aspect acquires special significance. Undoubtedly, all people are different, but, in my opinion, a frequent change of residence can cause stress in children, as they are likely to be forced to change their school, friends, family doctor, etc.
Therefore, families with children, as a rule, prefer to have their own housing. In turn, young people who do not yet have a family or who are only looking for the most suitable place for housing, look at this question much more broadly and for them renting is probably the best solution, ”says Ainars Balzers.