The government did not stop at the introduction of the program of preferential mortgage lending at 10% last year. In 2021, the Cabinet moved to an even greater rate cut. The ministers adopted a resolution, according to which part of the interest rate on mortgage loans will be compensated within the framework of the "Available loans 5-7-9%" initiative.
Prime Minister Denys Shmygal promises that it will be possible to take housing on a mortgage at 7% as early as March 1. Moreover, according to him, in the first half of 2021, a program of financial leasing and mortgage lending will be launched at 5% per annum.
However, such a mortgage will be available only for a number of borrowers with a decent white salary, only in a narrow segment of banks and for a narrow category of housing. In addition, it cannot be called reliable.
The borrowers repay
Less than 5% of all transactions for the purchase of apartments and houses are financed by mortgages today. For comparison, back in 2007, almost every second apartment was taken on credit. Low lending volumes are not surprising: according to the National Bank, the average rate on a mortgage loan in Ukraine in October 2020 was 17.2% in the primary market.
In European countries, however, it averages from 1.5 to 5%. And a number of banks in the world even offer the so-called "negative" rate, which, taking into account all the commissions of financial institutions, is approximately zero. In addition, there is no truly long-term mortgage lending in Ukraine.
However, the trend started to improve. Last year, at the end of the year, even more, mortgage loans were issued than in 2019: 18 thousand against 7, while in general, the volume of lending began to decline. This is primarily due to the fact that last year the discount rate of the National Bank was reduced to a phenomenal 6%, and some banks began to reduce interest on mortgages. Experts also note some influence on this trend of the introduction of state lending at 10% per annum.
The opportunity to get a loan at 10% is extremely tempting because in this case, the borrower's overpayment is significantly reduced. For example, if you take a classic mortgage for 20 years at the same 17.2%, which the National Bank says, in the amount of UAH 1,000,000 (40,000 USD) and with an initial payment of 25%, the overpayment will be UAH 1,295,375 (46,000 USD). And at 10% - UAH 753 125 (27,000 USD).
And, of course, this option turns out to be more profitable than renting an apartment. So, with the average cost of renting a one-room apartment at 270 USD per month (according to the NBU) for 20 years, taking into account the price freeze, you will pay 60,500 USD.
True, in practice the program turned out to be not at all as attractive as the officials promised. Only a few state banks issued it, subject to a number of conditions, and taking into account all the commissions, a mortgage could be taken only at 12%, and then only for the first year. The statistics of issued loans speaks volumes about the effectiveness of the program - only 11,8 million USD for six months of its operation (as of September).
Against the background of the decline in the discount rate of the National Bank, they started talking about mortgages at 7%. Housing loans are offered to be issued with an initial payment of at least 15% and a maximum of 20 years. Under such conditions, the overpayment will amount to only 597 480 UAH. Of course, the amount is still significant, but such a loan looks much more realistic.
However, there are questions about the prospects for introducing such a program. And even more so - to the likelihood of lowering interest rates to 5%.
Who can get a new preferential mortgage?
Not everyone will be able to take out a mortgage at 7%, but only those who purchase housing for the first time and have difficult living conditions. This can be a residence permit in a hostel or the presence of approximately 13.65 sq. meters per family member, living in dilapidated and dilapidated houses, staying in line for housing. Those who have ever tried to get in such a line know how difficult it is. The outdated housing stock in practice turns out to be the insufficient reason for such registration.
Also, teachers and doctors, young families, and internally displaced persons can apply for the program. If you have "artificially worsened your living conditions" over the past five years, that is, for example, sold your home, you will not see a preferential mortgage. The age limit for participants is up to 70 years old.
In addition, you will need to have on hand at least 15% of the cost of the apartment. When purchasing a home for 35,000 USD, you need to have about 5,400 USD. In general, this indicator is adequate, because in Europe the collateral is on average about 20%.
Now, when issuing mortgage loans, banks are targeting a 30-50-year-old family man with a white salary, who has children and a working spouse (also with official earnings). Usually, banks require documents on family income six months before applying for a loan. And, of course, they check their credit history.
To get a loan, you need to have an income of at least twice the monthly payment. That is, a teacher, for example, will need to have a salary of about 580 USD to purchase an apartment worth a million hryvnias (40,000 USD). And not every state employee can boast of such income.
Workers in the entertainment, hotel, and restaurant, and tourism industries might be under attack. Due to quarantine restrictions, financial institutions carefully assess credit risks and also study the employer's behavior model during the quarantine. For example, whether some of the workers were sent on vacation at their own expense. In addition, it may be more difficult to get a loan for military personnel, because the law prohibits imposing fines and penalties on them in case of delays.
Hidden interest and risks
Under the new mortgage program, you can take housing for no more than UAH 2.5 million (90,000 USD). The maximum area is 50 sq. m, if the family has one or two people – 20 sq. m for each next family member.
We are considering housing that is no more than three years old – that is, it is possible to purchase a relatively fresh secondary housing and a private house. This is done in order to "cut off the oxygen" to dealers, speculators, "apartment magnates." However, in fact, this restriction may also affect the massiveness of this program, because, for example, in the regions, developers are not very active. Moreover, it was originally planned to generally establish a 5-year "age" of housing and 10-year - for the regions.
If we are talking about secondary housing, nuances immediately arise. Those who own a home for less than 3 years and sell it, under the current legislation, must pay 6.5% tax. Usually, this amount is borne by the buyer. When buying an apartment for 35,000 USD, the amount increases to almost 38,000 USD. If the apartment has been owned for more than three years and this is the first sale by the seller during the year, taxes are not paid.
In the case of buying unfinished housing, it is not clear what will happen to citizens if they use the program and are abandoned by the developer. The bank will agree on a list of unfinished construction projects, but what guarantees this will give to citizens is not yet clear.
And even in the case of acquiring an already completed primary facility, the borrower is not insured against additional interest - as it was, however, with the program "Mortgage at 10%." It will bear both insurance payments and one-time commissions when issuing a loan.
But the most important thing is not even additional commissions, but the risks of a complete revision of the promised low-interest rate.
if in 5-10 years the budget does not allocate funds to pay off the interest rate, the entire current amount of the interest rate will fall on the shoulders of the borrower. After all, there is a direct agreement between the person and the bank. The amount to compensate part of the rates will be transferred monthly to special accounts of borrowers.
The guarantee of compensation for part of the mortgage rate from the state budget for 20 years covers only half of the market rate. That is, on condition that it does not rise above 14%. And this cannot be ruled out for such a long term. This is why banks, which issued mortgages at 10%, actually fixed such an interest rate for only a year.
Even under such conditions, not all banks will be ready to participate in this program. Now loans secured by real estate are issued by no more than ten banks. The mathematics is simple: it is more profitable for financial institutions to work with government bonds than to lend to a buyer of real estate for a long time, taking into account the unstable situation in the country, to accompany loans, to check the solvency of citizens, to evaluate the property.
In addition, according to Vitaliy Romanchukevych, vice president of the Association of Ukrainian Banks, banks do not have funds for long-term loans for 20 years.
In anticipation of a lending boom. Will there be enough funds for the program?
It cannot be said that under such conditions of mortgage lending, Ukrainians will massively become participants in the program. Anatoliy Topal, head of the Association of Professional Real Estate Managers, believes that after 2008, when the state compensated for the bank rate, confidence in the system did not grow.
Experts suggest that some recovery will come at the expense of people with stable wages. For example, in the IT field. Those who are not sure about the future, most likely, will focus on discussing options for the installment plan with the developer. Payment terms will be shorter, but the requirements for proof of income will be lower.
Apparently, the Cabinet of Ministers does not have any illusions about the scale of the program: Finance Minister Serhiy Marchenko suggests that in 2021, thanks to state programs, about 30,000 families will take mortgages on housing. Even under conditions of modest demand, the issue of lack of resources for such an "auction of unprecedented generosity" is already quite acute.
How much money is needed for the program is unknown. According to the calculations of the first deputy head of the NBU Board, Kateryna Rozhkova, if the program is in effect for 5 years, at least about 180 million USD will have to be spent on it – about half of the funds allocated for the "5-7-9" program. This means that you will either have to look for additional funds (most likely due to the emission), or the promise will burst like a soap bubble.
In addition, there are questions about the costs of administration when running such a program. Not only the State Mortgage Institution and the Agency for the Refinancing of Housing Loans, but also the recently created Ukrainian Housing Finance Company, were attracted to finance the mortgage program. Now the Entrepreneurship Development Fund will take over the relevant functions. Representatives of the fund say that they are not happy with such changes because the mortgage for them is a non-core sector.
The managing partner of the Financial Club, analyst Ruslan Cherniy, suggests that the launch of the program will keep the trend of mortgage lending growth. It suggests tougher competition in the market, which will manifest itself in lower interest rates. Accordingly, the number of clients who can take out a mortgage will increase.
In order to make mortgages in Ukraine really affordable in the future, it is necessary to rely not only on lifting interest rates and a longer lending period. A mortgage boom is possible only with a comprehensive economic recovery and an increase in the population's ability to pay. It is necessary to relax the requirements for borrowers, which, in turn, is possible only in the case of increased protection of creditors' rights and the settlement of legal issues in the real estate market.