Authorities approved a regulation to protect the rights of mortgage borrowers

The document aims to minimise the spread of subprime mortgage lending schemes and should oblige lending institutions to inform borrowers in more detail about the terms and risks of loans.

The law should prevent cases where banks send money issued for a mortgage not to an escrow account but to a letter of credit, when the funds are not used for the intended purpose. The ban on placing borrowers’ money in letters of credit for the long term will reduce the risks for citizens, since in letters of credit, unlike escrow, funds are not protected by a deposit insurance system.

The down payment cannot take into account the amount that will be returned to the buyer after the purchase of the apartment (cashback). The ban is necessary to ensure that the buyer pays the down payment with his own money. The less it is, the greater the risk that the buyer overestimates his capabilities and loses money and housing, the Central Bank noted.

The rule would prohibit banks from receiving remuneration from a developer for setting a lower mortgage interest rate if this leads to an increase in the value of the property.

The document will outline what the lender must consider when setting the amount, term, fees and other parameters of the mortgage. The standard recommends issuing mortgages for a term of no more than 30 years and for an amount not exceeding 80% of the fair value of the property.

The document will apply to contracts concluded after January 1, 2025. From this date, banks, when receiving remuneration from a borrower for a reduced interest rate, must honestly inform him of the difference in the total cost of the loan. This is done so that when making a decision, the borrower understands whether this service is beneficial for him. In case of early repayment, the credit institution will be obliged to return the unused part of such remuneration.