Serbia’s housing loan users could see an increase in their monthly payments starting in 2025, depending on the outcome of amendments to the Law on the Protection of Users of Financial Services, currently under parliamentary review. While the proposed changes could lead to higher loan installments, they will still be lower than the current market interest rates, which are approximately 5.9 percent.
The National Bank of Serbia (NBS) has introduced the Draft Law to the Serbian Parliament, which has sparked diverse reactions from the public. The law aims to both protect and potentially disadvantage borrowers of housing loans.
One key provision is a transitional measure that could take effect on January 1, 2025, if adopted by Parliament. This provision sets a maximum nominal interest rate of 5 percent for all loans with a variable interest rate, including both existing loans and new ones signed after the law is enacted. According to the NBS, this measure is intended to shield consumers from rising rates, as the current market interest rate of 5.9 percent—based on the EURIBOR reference rate of 2.9 percent and a typical margin of 3 percent—could cause significant loan payment increases.
Under this proposed law, loans with a variable interest rate would remain capped at 5 percent, helping borrowers avoid sharp increases. For example, on a loan of 80,000 euros over 20 years, the monthly payment would rise from 485 euros at the current NBS-imposed interest rate of 4.08 percent to about 523 euros with the new 5 percent rate. However, if market conditions applied, with an interest rate of 5.9 percent, the monthly payment would climb even further to around 561.5 euros.
The Law’s impact after 2025
This transitional provision delays the application of another significant part of the law, which would set a new cap on the maximum variable interest rate for housing loans. Starting in 2028, the variable interest rate will be determined by the average weighted rate on existing loans with a variable rate, plus an additional 0.25 percent. For the period from 2026 to 2027, the maximum rate will be the average weighted rate plus 0.2 percent.
Additionally, the NBS will publish average weighted interest rates for housing loans twice a year, based on data from March and September, to ensure greater transparency for consumers.
Impact on loan borrowers
Financial adviser Vladimir Vasić explains that the law aims to address the volatility of interest rates, especially following significant fluctuations in the EURIBOR rate in recent years. While this could result in higher monthly payments for borrowers, Vasić emphasizes that the law will prevent drastic increases in monthly installments that could have occurred without these provisions. The transition period for implementing the law allows for some adjustment time, helping protect borrowers from immediate, large-scale rate hikes.
According to Vasić, without this law, borrowers would face much steeper increases in loan payments, particularly if the market interest rates were allowed to take full effect. The law essentially softens the impact of these shifts, offering a level of stability for housing loan borrowers.
Consumer protection and bank responses
The new law also addresses other types of loans, such as consumer loans, credit cards, and overdrafts. Notably, the law will limit interest rates on new and existing credit card balances and overdrafts. For instance, the maximum nominal interest rate for existing credit cards will be capped at 17.75 percent, and for overdrafts, the cap will be 19.75 percent.
While the law is seen as a step toward consumer protection, some critics, like Dejan Gavrilović, president of the Consumers’ Association Ektefifa, argue that it fails to address other issues such as hidden fees and charges that banks may impose on borrowers, particularly in the form of loan processing fees. Gavrilović compares the interest rate cap to gasoline price limits, suggesting that while interest rates may be capped, banks could find ways to make up for the loss in revenue by raising other fees or commissions.
Conclusion
The proposed amendments to the Law on the Protection of Users of Financial Services could lead to higher monthly installments for housing loan borrowers, but the law is designed to offer consumer protection by keeping interest rates lower than current market conditions would dictate. While the full impact remains to be seen, especially after 2025, the law provides a safety net for borrowers during a time of economic uncertainty. It also signals a greater role for the NBS in managing interest rates and protecting consumers from excessive costs related to loans and credit products. However, the effectiveness of these measures will depend on their implementation and the continued monitoring of the banking sector’s response to the new regulations.
