Returning emigrants purchase real estate in Lithuania – many buy from personal savings

Lithuanians living in emigration are increasingly buying homes in their homeland not from borrowed money, but from what they earned and saved. The earlier fear of real estate brokers, of emigrants rather investing in homes abroad did not come true – the market is especially lively right now, Monika Kasnikovskytė wrote in TV3.lt portal.

Two years ago, restrictions came into power for banks in Lithuania in issuing loans to Lithuanians working abroad, who do not receive incomes in euro. Even with the law being made less restrictive, Lithuanians in emigration are not particularly attracted to loans.

Loosened restrictions

The main reason leading to the amendments made, as the Bank of Lithuania explained back then, is risk management. According to the bank, borrowing in a currency different to one’s income currency is risky because financial markets lack measures, which can help safeguard from exchange rate fluctuations over the span of twenty or thirty years.

Soon after the changes, real estate brokers protested that the changes to loans will most painfully impact Lithuanian nationals working in England, Norway and Sweden, who would invest in real estate abroad rather than buying at home.

However, due to the amendments to the same law, which came into power from January 1, 2019, the situation changed and banks and unions began to grant home loans to individuals receiving incomes in foreign currency. This service is currently offered by the major banks SEB and Swedbank, the Medicinos Bankas and a number of credit unions.

Not much interest

As an example, the SEB bank offers foreign currency loans to individuals, who receive incomes in Swiss francs, British pound sterling, US dollars, Danish, Swedish and Norwegian crowns. Loans in euro are also available to individuals, who live in the European Union or European Economic Area countries.

Nevertheless, SEB bank Communications Project head Jovita Bazevičiūtė states that the bank, while not gathering statistics on foreign currency home loans to Lithuanians in emigration, much interest in these loans has not emerged.

“There are not many clients in the SEB bank, who took out home loans in foreign currency, such cases are quite rare. We notice that often emigrants purchase real estate in Lithuania (especially in the regions) with their own, not borrowed funds,” J. Bazevičiūtė wrote in her response to tv3.lt.

Swedbank also observed that home loans in foreign currency are not particularly popular.

“From among all home loan recipients, the portion of such individuals this year comprises up to 2%,” the bank’s representative in Lithuania Saulius Abraškevičius told tv3.lt.

Lively market

Real estate brokers, who earlier were concerned that due to increased restrictions on loan regulation, potential buyers could be deterred, now notice an interesting trend – around half of emigrants buying homes in Lithuania do this from their personal funds.

“The statistic is that half of them buy from the credit, half – from personal funds. No doubt, these personal funds have to be gathered somehow, thus some work abroad for a few years and return to Lithuania to purchase a home,” the Old Town office manager of Ober-Haus Marius Čiulada told tv3.lt.

He also notes that the real estate market remains full of vitality and continues to surprise with its growth.

“The market is growing and sales metrics continue to surprise us ourselves. We continue looking at new quarters and continue seeing new contract records regarding new constructions, as well as older homes. We see an active, lively market, where borrowed money does not dominate as was during the peak times, there’s much personal money, which implies after all that the market is balanced and healthy. The money itself is earned both domestically and abroad,” M. Čiulada spoke.

Loan costs rising

However, obtaining a new home in the capital or other major Lithuanian cities could become more difficult. Problems arise not only from continuously rising real estate prices but also the average home loan interest rates. In Lithuania, they have grown between 1.84 and 2.36% for the past five years.

Furthermore, this year interest rate growth in Lithuania is among the fastest in the Old Continent. Compared to June this and last year, average interest rate growth was faster only in Greece and Spain. Afterwards follow the three Baltic States, with Lithuania being in front.

Real estate developers and the Bank of Lithuania explain that such loan cost increases are due to two reasons – citizens being more active in purchasing homes in the cities and also the reduction in the number of banks in the country. Due to this, banks that offer home loans can allow themselves higher interest rates.

While home loans are more affordable in Lithuania than in Latvia or Estonia, all the Baltic States taken together can be called as one of the most expensive regions in terms of loans. What is interesting is that in countries such as France or Germany, loans are almost an entire percentage point cheaper than in Lithuania, while in Western Europe, average home loan interest rates continue to contract. While in Lithuania it becomes more expensive to obtain a home loan, in countries such as Germany or France, home loans become cheaper.