Lithuanian central bank to make sure fixed rate loans’ rates are “fixed”

The central bank has proposed measures to make sure that banks charge the same interest on fixed rate loans for the duration of the loan repayment rather than revising interest rates every five years, as is the common practice now.

Bank of Lithuania governor Vitas Vasiliauskas said that when banks issue “fixed rate” loans, this should mean that the interest rate does not change until the loan is repaid and not renegotiated every five years.

“When they [banks] now talk about fixed interest for five years – in our opinion, it is misleading, because interest can be fixed only when they do not change for the entire duration,” Vasiliauskas said on Tuesday.

“I hope that new rules will leave no space for debate about what fixed interest is. The law will say that fixed interest means only interest rate that stays the same throughout the loan repayment period.”

The proposed rules would also prohibit indexing housing loans to other financial products and banks would have to clearly show the components of variable rates in their loan contracts.

“The risks of real estate prices cannot be put on the shoulders of the weaker party, the consumer,” Vasiliauskas said.

The Bank of Lithuania has also proposed to cap bank charges on essential banking services for consumers, like opening a bank account and making a limited number of payments online.