Introducing Mortgage Holidays for Borrowers: Government Proposal

The Armenian government has developed a project proposing amendments to the Civil Code to introduce the concept of a "mortgage holiday" along with key provisions regarding its implementation.

As detailed on the e-draft legal acts and projects unified website, the project offers borrowers in "hard life situations" a one-time opportunity to apply for a mortgage holiday.

At the same time, the obligations of the lender will be established to include information about the conditions for granting the mortgage holiday in the lending agreement.

The project also defines the conditions considered as a "hard life situation". These include:

• The borrower has been granted unemployed status by a competent authority.
• The borrower has been recognized as having a 1st or 2nd group disability.
• The borrower has been temporarily incapacitated for more than 2 consecutive months.
• The borrower’s average monthly income has decreased by more than 30% compared to the previous month of the application.
• In the following six months from the application, the average monthly repayment obligations exceed 50% of the borrower's average monthly income from the previous month.
• The number of dependents has increased since the signing of the lending agreement, while the average monthly income has declined by more than 20%, with repayment obligations exceeding 40% of the borrower's average monthly income.

Providing that these conditions are met, the borrower can apply for up to a 6-month mortgage holiday under terms agreed upon by the parties involved.

After the expiration of the preferential term, payments will continue based on the initial terms established in the credit agreement, and the term of the mortgage contract will be extended by the duration of the holiday.

According to the project's justification, mechanisms for deferring obligations for borrowers facing various life situations are applied in many countries with developed banking systems. In Great Britain, all banks offer mortgage holidays for specific groups of citizens for up to 12 months. In Germany, special programs for payment deferrals exist for individuals experiencing temporary financial difficulties, with conditions determined jointly by the client and the bank. In Ireland, all banks provide mortgage holidays for borrowers encountering hard situations (emergency repairs, education, pregnancy, childbirth, etc.). Principal repayments can be deferred for up to 6 months, and interest payments for up to 12 months. In France, there is an option for payment deferral for any type of loan, including mortgages, available for borrowers who have lost their jobs or are facing other difficulties, with the maximum period being 24 months. Since 2019, a legislative package has been adopted in Russia for granting mortgage holidays, allowing borrowers to take advantage of preferred periods of up to 6 months under certain legal conditions.

The project also proposes replacing the concept of "hypotek" with "mortgage", ensuring the uniformity of terminology in the regulating legislation.