On 23 January 2007 the President of Azerbaijan, Ilham Aliyev, signed a decree on the improvement of the system of issuing mortgages
Thus, Azerbaijan gave green to a long-awaited mortgage mechanism enabling the low-incomes people to improve their dwelling conditions.
Changes will be implemented to some laws, including the laws on Land Reforms, Land Market, Execution of Sentences, the Land Code and the Code of Administrative Violations.
At the ruling of the Azerbaijani President, the Cabinet Minister is committed to develop and present proposals on injecting changes and supplements to the legislative acts in connection with the application of the Law on Mortgage. Thus, the Law on Security becomes ineffective due to the application of the Law on Mortgage.
Thus, young families, shehid (martyr) families, national heroes, internally displaced people, employees of state services with work experience of no less than 3 years, candidates in sciences, Ph.Ds, sportsmen with special services and the military of the Defense Ministry with a service term of no less than 3 years will enjoy the right to receive mortgage credit.
The rules of social mortgage envisage issue of privileges only through the Azerbaijan Mortgage Fund at the National Bank of Azerbaijan and the mortgage is given to one person (family) only once. The priority of the social mortgage is that the beneficiary obtains a right to purchase an apartment through transferring only the initial fee вЂ" 15% of the cost of the apartment. The rest sum is given as a credit for the term of from 3 to 30 years at an annual rate of up to 4%. Maximal amount of the privileged mortgage is 35,000 manats ($40.17mln at current rate).
Previous |
General mortgage credits |
Social Mortgage | |
Term of issue of the credit |
15 years |
25 years |
30 years |
The initial fee |
30% |
15-0% |
15-0% |
Maximal sum of credit |
30 000 |
50 000 |
35 000 |
Maximal rates |
12% |
8% |
4% |
Correlation between Annuity payment to incomes |
50% |
70% |
70% |
Types of insurance |
Property and life insurance |
Property insurance |
Property insurance |
Term of default |
2 months |
3 months |
3 months |
It actuality provides unique opportunities for an Azerbaijani citizens with average incomes to purchase an apartment. High prices of property is the real impediment in Azerbaijan in the way of purchase of apartments by low-income families.
Up to the end of the first quarter of 2007, the Azerbaijan Mortgage Fund (AMF) functioning under the National Bank of Azerbaijan plans to establish a Guarantee Fund for Mortgage Credits
The Executive Director of the AMF, Faig Mammadov, stated at a press-conference on January 24th that the Fund will be created as a non-commercial organization.
The key goal of creating the Guarantee Fund is to liquidate the payment while receiving the credit. At present the payment has been decreased from 30% to 15%. In future, the initial payment will be made by the Guarantee Fund. The project of the Regulation of the Fund should be presented for approval within a month. Mammadov said that the employees of the National Bank and AMF have prepared the relevant legal basis and have studied experiences of Kazakhstan and European countries, which have created such organizations.
Of course, the credit should be returned with interests. The said layers of population can count only for one- or two-room flats in outskirts Baku. At the same it is very profitable for those who rent houses. It would be good for them to pay these funds to the bank and know that the apartment is its property. The apartment cannot be sold, presented, substituted until repayment of the credit to the bank. As to payment of annual fees, they will be more probably balanced with the inflation which is observed in Azerbaijan every year.
During the month there are plans to submit proposals on the expansion of categories among the military, who can also get mortgage credit. Similar rights can be given to military personnel working out of the Defense Ministry, including the civil defense, emergency situations and frontier troops.
The improvement of the mortgage terms can be resolved through people's access to this financial tool not only in Baku, but also in the regions of the country. However, only young families with permanent job place and stable incomes can claim at the social mortgage, while the credit should be repaid by a borrower until the pension age.
However, the amount of the social, as well as commercial mortgage credits, is restricted and cannot be sufficient for the desired. Так the Azerbaijan Mortgage Fund (AMF), operating within the National Bank of Azerbaijan (NBA) is expected to grant 1500 mortgage loans in 2007: some 1000 credits are expected to be granted in accordance with the general conditions of mortgage crediting and 500 within social mortgage.
If needs in mortgage crediting increase, additional financial resources will be implemented. Some 20 mln AZN are expected to be granted for these aims from the State Budget in 2007.
A total of 22 banks, 10 insurance companies, 11 organizations engaged in appraising, and one broker company are agents to the mortgage market.
Mr. Mammadov does not rule out that the list of AMF agents might be extended, however the involvement of all the banks operating in the country is too early. Some 16-17 banks out of the bank-agents of AMF are the most active ones, and their number extends as they pass institutional preparations and trainings.
The Impact of the Improvement of the Mechanism of Presenting Mortgage Loans:
Initial Rate |
Average Rate |
Total |
Social Mortgage |
Ratio | |
Interest Rate |
12% |
8% |
6% |
4% |
3 |
Term ofCredit |
15 years |
15 years |
25 years |
30 years |
2 |
Initial Payment |
30% |
30% |
15% |
15% |
2 |
Amount of Credit (AZN) |
30 000 |
30 000 |
50 000 |
35 000 |
-2 |
Monthly Payment (AZN) |
210 |
180 |
135 |
100 |
2 |
East Europe countries undertook assimilating the experience of their rich neighbors and even now justify the investments in dwelling crediting in the shortest period and three-fold amount.
Witt the consideration of experience of these countries in this sector for Azerbaijan it is planned to form a package of changes. The changes made will enable to reduce the term of registration of documents to receive mortgage loans. AMF intends to fully complete the foundation of the normative and legal base. As it was accepted by the international practice, the contract on purchasing-selling, mortgage contract, and credit contract may be registered within a day, said Mr. Mammadov.
In addition, the terms of registration of a mortgage paper in the State Securities Committee might be reduced. Notably, the Board of NBA has already taken corresponding rules on its presentation.
Moreover, changes and alterations are expected to be made to the Election Code in the future. According to the international experience, interest rates paid on mortgage credits are calculated from the borrower base which is subjected to taxation. It means that interest rates are calculated from the monthly return, without introducing the base which is subjected to taxation. Changing this practice will enable expanding possibilities in the formation of free fund, as well as extending current and housing expenses. On the other hand, that will create a possibility to obtain a significant amount of the credit.
Countries |
Mortgage credit rate |
Initial fee |
Term of issue of mortgage credit |
Russia |
11,5-14,5% |
10-30% |
1-25 years |
Kazakhstan |
10-14 % |
10-30% |
3-20 year |
Ukraine |
12-13% |
10-30% |
30 years |
Kyrgyzstan |
14-22% |
30% |
3-7 years |
Azerbaijan |
4-8% |
15-0% |
3-30 years |
The purchase of dwelling at credit is a major form of resolution of the dwelling problem in many countries, as well as economic activities, where banking and other credit organizations play key role. In this, case the Government actual benefits. Firstly, the dwelling problem is resolved, no need for resolution of issue slinked with distribution of municipal dwelling, secondly, the mortgage funds are the best investments. At the same time the mortgage is directed at reimbursement of the construction boom in the country.
As of forecasts, mortgage in Azerbaijan has promising perspectives, which satisfies all participants in the deal. Firstly, the banks working with mortgages has an opportunity to issue guaranteed credits. Secondly, realty companies can rely on increase of the number of potential clients, desiring to receive mortgage. Thirdly, many residents of the country acquire long-dreamed apartments thanks to mortgage. Absolutely obvious, that an only opportunity for simplification of access to the mortgage is the drop in prices of the cost of dwelling. The dwelling for social mortgage should not be high.