Wage subsidy is no obstacle to applying for a loan

17. July 2020

Despite the end of the emergency situation, the economy is still facing turbulent times. Here and there we hear questions about whether banks are still lending money to buy a home and what happens to a borrower who has received a wage subsidy.

LHV confirms that it has an open loan policy – home loans are being issued as they were before, and the fact that those who have received a wage subsidy should be prepared to receive a negative loan decision is not true.

Although enjoying the compensation of salary created to mitigate the impact of the crisis shows that the crisis has not taken a wide berth around the people, it does not mean a negative loan decision based on the example of LHV. By the end of last week, the Estonian Unemployment Fund had awarded wage subsidies to 17,543 companies and institutions, the 137,505 employees of which have received a total of EUR 253.2 million as compensation. The average subsidy has been EUR 703.20.

This support measure has helped to preserve the jobs and earnings of people, and improve the situation of companies who found themselves in difficulties due to the crisis; however, it has also made people wonder whether receipt of the subsidy makes borrowing more difficult.

According to Catlin Vatsel, Head of LHV’s Private Financing Department, the wage subsidy itself is not an obstacle to applying for a loan. ‘We follow an open loan policy, especially during a crisis, and take an individual approach to each loan application. A home loan is predominantly applied for by a household, that is several applicants together, and if one or both applicants have been granted a wage subsidy, we shall analyse whether this has a direct impact on the solvency of the family. If the income of the family has deteriorated, it is important that the earnings are sufficient for making the loan payments and also for everyday expenses. The fact that part of the salary has been compensated by the Estonian Unemployment Fund is not an obstacle in itself. What is important, is the sustainability of income’, she confirmed.

This is proven by the fact that over the past few months LHV has financed the acquisition of homes of many clients who received a wage subsidy. For borrowers who have received the compensation, we analyse the employer, the sector where the employer operates as well as the position of the client. ‘It is important for the client to have confidence that their job will be preserved and that they have considered and mitigated the risks themselves. If we see that the borrower is fully prepared for the new financial obligation, we will make a positive loan decision’, Vatsel added.

The media has also claimed that banks are refusing to grant loans or, present unreasonably demanding conditions instead of a negative loan decision. In this respect, Vatsel also assured that there is no reason to worry.

‘Lending activity on the market has risen over the past two months and we have witnessed that, due to competition, it is in the interest of the banks to offer the clients conditions that are as favourable as possible for meeting their needs’, Vatsel commented.

According to Vatsel, it is important to understand that a home loan is a product that is taken for a long period, predominantly for 25-30 years, and the smooth repayment of the loan is, above all, in the interests of the clients themselves.

Also listen to the latest LHV podcast, where Catlin Vatsel, Head of LHV’s Private Financing Department and Kadri Kiisel, Head of LHV’s Retail Banking, discussed the topic of home loans.

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