The Latvian housing credit market needs a significant growth breakthrough to become more open, dynamic, diverse, and borrower-friendly – this is the conclusion of the Baltic Financial Centre (BFC) in its first study, a new independent think tank under the auspices of the Riga Business School at Riga Technical University (RTU). The study, titled "Mortgage Lending and Promoting Competition: Time to Shift Gears?", analyzes the experience of other countries and stimulates discussion on the development of the Latvian housing credit market in the next 5–10 years.
In Latvia, nearly the entire housing market is dominated by the four largest banks, whose lending is primarily financed through deposits. Meanwhile, in other countries' markets, new players have emerged after the financial crisis, including fintech companies, new non-bank lenders, and institutional investors such as pension funds and insurers, for whom investments in housing credit markets are highly attractive. These new players have filled market niches and offer a broader range of products, including mortgages with fixed interest rates.
BFC experts, after studying the experience of other countries, outline a vision for how the Latvian mortgage market should look in the next 5–10 years to initiate a broader discussion about its development potential. The market should see more diverse players entering, not just banks, but also fintech companies and other non-bank and specialized lenders. It is also necessary to diversify funding sources by attracting both Latvian and foreign institutional investors, including pension funds and insurance companies, and developing the capital market. The study emphasizes that modern mortgage markets also involve aggregators, brokers, and comparison platforms, which help consumers navigate the range of offers and significantly ease processes; however, this segment is still underdeveloped in Latvia. As the market develops, the regulatory and supervisory approach must also evolve.
"The key to effective competition is an active borrower who compares different offers and considers not only the well-known lenders but is also willing to give a chance to new and lesser-known market participants. In the past year, thanks to the collective efforts of many parties, significant barriers to refinancing have been removed, but we believe that this will not be enough. Too much is still placed on people's shoulders. In comparison, in other countries, brokers and various digital comparison platforms provide much greater support. For example, in the Netherlands, 60% of new loans are issued with intermediary involvement, and in the UK, 75%. Why aren't modern technologies being utilized?" emphasizes one of the study's authors, BFC Director Kristīne Dambe, who previously worked at the UK financial regulator on competition promotion issues and returned to Latvia to bring this experience.
The study's authors support the recent progress made in opening and developing the housing credit market but question whether the work started will continue once media and public pressure decreases. Especially in the coming years, it will be necessary to monitor whether the changes implemented have been effective and sufficient. The study concludes that one of the main obstacles to further changes is the fragmented system – various institutions need to be involved in driving, implementing, and evaluating changes. Currently, the biggest uncertainty lies in the division of responsibility for market development and promoting competition among the Ministry of Finance, the Competition Council, the two sector regulators (the Bank of Latvia and the Consumer Rights Protection Center), and the Financial Sector Development Council. Additionally, compared to other countries, the Competition Council currently lacks the necessary authority, tools, and human resources to intervene in markets where the competition process does not work effectively but does not violate competition law.
Commenting on the BFC study, the Minister of Finance, Arvils Ašeradens, emphasizes: "Latvia has not yet sufficiently developed independent policy research that would foster quality discussions and help make decisions based on research, so this new think tank's entry into the industry ecosystem is particularly welcome." The minister agrees that the financial policy-making and implementation environment in Latvia is fragmented, which can hinder decision-making, so such an analysis provides an opportunity to review system shortcomings.
In the context of the study, the President of the Bank of Latvia, Mārtiņš Kazāks, highlights the long-term perspective on the development of the mortgage credit market: "I agree that this is a marathon, not a sprint. The work of recent years has borne fruit, the situation is already much better, and I really hope that we will continue to move forward constructively, looking not only at banks but more broadly. The playing field can be much more diverse to offer the most appropriate services to society. The market should be opened to new financial service providers, including non-banks and fintech companies, moving toward a unified European-level financial services market. This is necessary so that financial services, including mortgages, are cheaper, better tailored to the needs of different population groups, and equally accessible both in large cities and regions."
Meanwhile, the head of the Financial Industry Association, Uldis Cērps, agrees: "We must be open to new business models in housing lending, which could be implemented under the supervision of the Bank of Latvia. We also emphasize the study's point about the need to significantly improve the quality of economic analytics in Latvia, especially in terms of evaluating the impact of new legislative initiatives on financial market participants, consumers, and financial stability."
The willingness of new players to enter the market is confirmed by the head of Fintech Latvia, Tīna Lūse: "We see that there are quite active alternative financial service providers in the Latvian market. Some of these market players focus specifically on real estate services for both individuals and businesses. Moreover, importantly, some of these companies plan not only to operate in the Latvian market but also expand into other global markets, which is especially important for a small economy like Latvia. Our task is to reduce bureaucratic barriers for these companies operating in Latvia."
The study was funded by the European Commission's Recovery and Resilience Facility. The study's authors – BFC economists and experts Kristīne Dambe, Andrejs Jakobsons, and William Schaub.
The full study can be found on the Baltic Financial Centre website.