Lithuania's housing market: Lower down payments may not spark immediate boom amid rising prices

Lithuania's real estate market is bracing for subtle shifts as new regulations, effective August 1, reduce the minimum down payment for home purchases from 15% to 10%. The adjustment is designed to assist first-time buyers, particularly young families and single individuals, who have struggled to save the required initial sum.

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New responsible lending regulations that came into force on August 1 will certainly help some clients purchase their dream home.

Tomas Žiaugra, development director at EIKA Development, believes the change will help some clients secure their dream homes sooner. He anticipates that the primary beneficiaries will be those seeking non-new or economic-class housing. While the reduced down payment offers savings, the impact is tempered by escalating property values. Marijonas Chmieliauskas, sales director at Realco, noted that a 50-square-meter apartment in Vilnius, averaging 4,200 euros per square meter in July, would now require approximately 21,100 euros for a 10% down payment, down from 31,700 euros at 15%. This still represents a substantial sum, but it's a third less than before.

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In July, the average price of a new construction apartment in the capital was about 4.2 thousand euros per square meter, so a 50 sq. meter dwelling cost about 211.2 thousand euros. With a 15% down payment, one would need to save about 31.7 thousand euros, and with it reduced to 10% – about 21.1 thousand euros. This is still quite a large sum, but a third less.

However, Chmieliauskas also pointed out the significant price increases over the past year. A year ago, the same apartment cost around 194,600 euros, a difference of 16,600 euros. Indrė Genytė-Pikčienė, chief economist at "Artea" bank, described the down payment reduction as a structural, long-term measure to boost affordability. She cautioned that the current housing market boom and rapid price growth might overshadow the benefits in the short term. Official indices show annual housing price increases ranging from 11% to 18%.

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Indeed, due to the current housing market boom and accelerating housing price growth, the benefit of this measure is lost in such housing inflation in the short term.

Experts are not forecasting an immediate surge in buyer activity. Genytė-Pikčienė suggests the full advantage of the lower down payment will become apparent when affordability indicators improve, meaning price growth slows and salaries outpace it. Žiaugra echoed this sentiment, stating that a significant immediate market activation, especially for new constructions, is unlikely under current conditions.

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So, it is likely that this benefit for first-time homebuyers will become more significant when affordability indicators recover – price growth slows down and salaries outpace it.