Cheap mortgage is a rod of double end
International rating company Penny Lane Realty has made a rating of countries with the best mortgage. The rankings take into account the average interest rate, fees for opening and maintaining the loan account, the cost of housing. Denmark ranked the first, where the average interest rate is 1.36 percent (monthly fee - 566 euros). Thus, citizens pay a total of 114 percent of the loan. In this case, the average citizen of the country spends 13 percent of monthly income on the mortgage. Sweden ranks the second. The average interest rate there totals 2.23 percent, the monthly payment is 596 euros. Residents pay 117 percent of the disbursed loan. Spain became the third (2.44 percent). The citizens have to monthly pay 628 euros and the total cost of the loan is 123 percent of the issued amount. The fourth was Portugal (2.51 percent), fifth - Norway (2.89 percent). But Azerbaijan (16.9 percent), Argentina and Turkmenistan (18 percent) close the list.
This study evaluated the entire mortgage portfolio of the country, but again the average interest rate of mortgage in Azerbaijan at 16 percent is impossible to be called normal according to the rating.
According to these standards, the mortgage market in Azerbaijan is evaluated not only within the mortgages issued by the Azerbaijan Mortgage Fund (AMF) with interest rates of 4 and 8 percent. In addition to this, the calculations also take into account the commercial mortgage. In this case, the interest rates of commercial mortgage in Azerbaijan will start from 15 percent and reach 30 percent.
In that amount the mortgage interest rates in Azerbaijan do not reflect the ability of the population. It has its own reasons - mortgage for a long time was suspended in Azerbaijan, then it was resumed, but the conditions of its issuance were tightened. As a result, it has become less accessible to the public. In this situation, the Government of Azerbaijan currently solves the problem by facilitating the mortgage, and the state budget of Azerbaijan increased spending on social mortgage in 2011.
So, for example, in Azerbaijan it was suggested to provide interest-free mortgages in Azerbaijan. "Mortgages should not be issued with a commercial purpose, Deputy Parliamentary Social Policy Committee Chairman Musa Guliyev said. "Mortgage is a project for the state to support its homeless citizens, and I think that the percentage of the mortgage loan should only be associated with the level of inflation."
He believes that the state should provide a long-term loan to citizens and then collect the debt based on inflation. He said that one of the main hindrances to mortgage development in Azerbaijan is that the banks pursue financial gain.
The Ministry of Youth and Sport of Azerbaijan believe that mortgage terms for young people should be maximally simplified, particularly, the Ministry says that the mortgage loans would be issued under zero interest.
The rules of issue of mortgage to young families will be simplified in Azerbaijan, Deputy Youth and Sports Minister Intigam Babayev said. There will be developed a program of solution of social problems of the youth, which will be included in the state program as a separate bloc, he said. "This will be a bloc of social development of the youth. Simplification of the issue of social mortgage will also be reflected in the bloc. The amount of money assigned for social mortgage today does not correspond to the real estates market. In this connection, there were issued corresponding instructions, and a package of proposals is under preparation. This issue will also be reflected in the problem. Solution of housing problems of the youth at the same time provides efficient employment of the youth," Babayev said.
According to preliminary data, the changes to the terms of mortgage loans will affect both the amount allocated and the conditions for the selection of apartments. Today the amount of the social mortgage does not allow young people to buy new apartments. After the changes, the new apartments will also become available on the mortgage. In addition, the changes will also affect the amount of salary and primary payments. It is projected to decrease the amount of initial payment up to 10 percent and the minimum wage - twice.
In addition, if the interest rates decline from 4 to 2 percent, the amount of required wages will also fall by half. This means that if earlier the monthly salary was to be AZN 400 to obtain preferential mortgage, after changes, the preferential mortgage will be received by citizens with a salary of AZN 200 per month. Plus, it is planned to establish a guarantee fund associated with the primary payments and payment of interest on loans. The Fund will assist young families in paying interest rates on a mortgage. In addition, the Central Bank plans to create building-savings banks, which will generate funds to persons who are unable to pay the initial fee.
STATISTICS : Mortgage loans worth 35.8 million manat were issued through the AMF in January-May this year.
The total amount of refinancing loans issued by banks earlier amounted to 28.8 million manat. Some 4.6 million manat of 14 million manat envisaged in the 2011 state budget for financing the social mortgage has been issued since early 2011.
Ordinary mortgages are financed by funds from the placement of mortgage bonds. Youth and young families accounted for 72 percent of total loans (41 percent of borrowers aged 18-29 years, 31 percent - 30-35 years old). 28 percent of loans accounted for borrowers over 36 years old.
Under the AMF's terms, the maximum amount of the issuance of conventional mortgages in Azerbaijan is 50,000 manat at a rate of eight percent and for 25 years. But the amount in the social mortgage is 35,000 manat, at an annual rate of four percent and the term - 30 years. Initial fee for the social loans is 15 percent and for the ordinary loans - 20 percent.
Conditions of the mortgage lending are as the following: loans must be issues in the national currency with manats and only to Azerbaijani citizens, and an object of the mortgage can only be an apartment or private houses, volume of the mortgage lending must not exceed 85 percent of the market price, monthly payment for a loan must not exceed 70 percent of debtor's monthly income, as well as presence of an agreement on life insurance and others.
Preferable conditions are granted to members of families of war victims, families of national heroes, internally displaced persons, civil servants with at least a three-year experience, candidates PhD and PhD, persons making special contributions to sport, as well as militaries with at least a three-year service term.
Each family having the right to a lax mortgage loan can use this chance only for one time.
However, cheap mortgage is a rod of double end. If on the one hand, the low-cost mortgage is available to the public, on the other, it raises the prices in the housing market. If mortgage becomes available, there are more opportunities for home purchase. Accordingly, the volume of demand increases in market, which affects the price situation.
Some experts say that lower interest rates without an adequate growth in housing construction would lead to an increase in housing prices, as it was in 2006 when one-sided stimulation of demand for mortgages with a decrease in interest rates by banks led to an increase in housing prices. So, in January 2007, upon the order by the Azerbaijani President Ilham Aliyev, the procedures for mortgage lending started to be facilitated in the country, taking advantage of which, the population became much more active in real estate.
Later in June 2007, when house prices reached a peak, the state mortgage lending in Azerbaijan was suspended until June 2009, when housing prices began to descend. At the same time, in connection with the anti-crisis measures of the Government of Azerbaijan, the mortgage loans were resumed. As the reason of suspension of funding mortgage loans, the AMF called a lack of funds. The 2007 state budget had allocated 20 million manat for the Fund, of which only 3 million manat was transferred.
Besides Europe, maximally simplifying the mechanism of mortgage lending, faced such a problem as massive defaults on repayment of loans. For example, in Spain the number of overdue mortgage payments increased by 4 times. It should be noted that the global financial crisis in 2008 started from the bankruptcy of the mortgage lending market in the U.S.
However, despite these concerns, the experts in the housing market consider that the opinion that increasing the availability of mortgages will lead to an increase in housing prices will not be confirmed in the next ten years. However, this point of view will be justified if market prices are not inflated by artificial instruments. The market itself is able to regulate prices. The primary market in the capital of Azerbaijan is used with absolute advantage. However, in the primary market in Azerbaijan there are opportunities for further growth in order to maintain the balance of proposals under high demand. And today every third Baku family needs improvement of the housing conditions.