According to Ugnė Žiogelė, an analyst at the real estate development company “Citus,” this step is a strong positive signal to the market, especially for young professionals and families for whom the biggest barrier to purchasing their own home is not the monthly payments, but the requirement to accumulate a large sum at once for the start.
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“Lowering the initial down payment threshold to 10% significantly shortens the time a person has to spend renting and saving. For example, when buying a property worth 150 thousand euros, instead of 22.5 thousand euros, now it will be enough to have 15 thousand euros. That is a difference of 7.5 thousand euros – an amount that a young family in the capital or other big cities sometimes saves for five or eight years,” calculates U. Žiogelė.
Who will the 10% rule apply to? Three safeguards
Although the change sounds positive at first glance, the Bank of Lithuania has introduced a clear safeguard mechanism to avoid irresponsible borrowing. Those wishing to qualify for the reduced down payment will have to meet three requirements.
The first is a strict first credit agreement rule. This means that for the borrower or co-borrowers, this must be their very first housing loan in life. No exceptions are provided for a person who has previously had a loan but has successfully repaid it.
The second requirement stipulates that at the time of concluding the credit agreement, the person must not have owned real estate property in their name and must not have owned any in the past five years.
The third important challenge is income assessment. Until now, when buying real estate, the maximum monthly payment to the bank could not exceed 40 percent of the person’s or family’s sustainable income (or 50 percent, calculated with a 5 percent interest rate). After the changes, the payment cannot exceed 50 percent of income, calculated with an interest rate of no less than 6 percent.
“Those planning to take loans should consider that although it will be easier to acquire property with a smaller down payment, buyers will need higher incomes. For example, when buying a property worth 200 thousand euros, the down payment will be 10 thousand euros less, but the monthly payment itself will be about 50 euros higher, so the bank will require about 130 euros higher monthly income. However, this will definitely help families who have sufficient income but do not want to save for a long time for a home they need today,” says U. Žiogelė.
Experts calculated – how much shorter the path to owning a home will be
The “Citus” analyst emphasizes that a reduced down payment does not automatically guarantee an easier loan approval process, as banks will scrutinize buyers’ financial stability even more closely. This innovation will mostly benefit buyers who earn good incomes, have promising professions, but due to their young age simply have not managed to accumulate the standard 15% down payment.
Let’s say two young specialists, together earning an average Vilnius salary (about 3,590 euros net), are looking for a two-room apartment in the capital, where the price today is 170 thousand euros (the calculations also include an annual 5% property price increase).
According to the first scenario, the couple saves 10% of their total income each month, which is 359 euros (4,308 euros per year). To accumulate the standard 15% down payment, due to the constant increase in property prices, the couple would have to save for 8.3 years. However, lowering the down payment threshold to 10% would allow the couple to accumulate the required amount in 5 years. This means the new rule shortens their rental period by more than three years.
The second scenario is financially more disciplined, where the couple decides to allocate 15% of their income to savings, setting aside 538 euros each month (6,462 euros per year). Living at this pace, it would take 4.8 years to accumulate the standard 15% down payment. However, using the new 10% relief, the goal is reached in just 3 years.
It is necessary to do homework and assess your financial situation
Before starting real home searches, experts advise objectively assessing total household income, existing investments, savings, and all obligations. A precise understanding of your financial capabilities protects against painful mistakes: when reserving a home, it is essential to firmly know whether you will be able to pay the final amount and cover renovation costs. Otherwise, you may have to terminate the preliminary contract, which means lost money and painful financial penalties.
“It is worth planning your household budget not for ‘today,’ but for at least a 2–3 year perspective, considering possible life changes, such as a temporary income reduction when the family grows or the risk if one family member temporarily loses their job. Buying a home becomes one of the most important purchases in life for most people, so devote attention and time to ensure this decision is thoughtful and calculated,” advises U. Žiogelė.
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