Dream homes are becoming realities for more Kyivans, as banks provide a greater variety of mortgage options that matching people's ability to pay
The number of mortgage loans that the nation`s commercial banks have issued several years. Even so, analysts say, the mortgage market still has a long way to go before the notion of borrowing money from a bank to buy a home becomes as common as borrowing sugar from a neighbor.
Industry insiders say that while more homebuyers have been successfully applying to banks for loans, lending terms that are not altogether favorable leave the vast majority of Ukrainians with little choice but to scrape together what they can and borrow the rest from relatives and friends.
They say that many banks are reluctant to lend money to homebuyers because the country lacks mortgage financing laws. Last March, President Leonid Kuchma vetoed a bill that was meant to develop the nation’s nascent mortgage loan market and improve its wobbly investment climate.
As a result, most banks that issue mortgages charge borrowers about 15 percent annual interest on loans and require them to make hefty down payments of up to 30 percent of the price of the apartment they want to buy.
By comparison, experts say that in Slovakia, banks charge from 9 percent to 11 percent interest on mortgage loans, and the interest is partially subsidized by the government. Mortgage interest rates charged in Ukraine are the highest in Eastern Europe.
Lyubomyr Kylymnyk, the head of the deposit and loan department at Arkada, a commercial bank, said that when a mortgage law is adopted, banks would have the right to take homebuyers’ money and issue mortgage certificates to investors. He said that this would develop and expand Ukraine’s mortgage loan market. Banks are currently forced to make loans from their own resources, he said.
Meanwhile, he said that Ukrainians, many of whose savings were wiped out by pyramid schemes in the mid-90s, continue to shy away from financial institutions.
“Without large-scale banking reform that includes a state deposit guarantee system, people will not trust their savings to banks,” he said.
Kylymnyk said that every large bank in Ukraine is able to grant five- or 10-year mortgages, but that Arkada is the only bank that offers 30-year, inflation-adjusted fixed-rate mortgage. The current rate is 10.5 percent per annum.
Analysts said that a homebuyer who applies for a 30-year mortgage loan ends up returning to the bank 2.6 times more than he borrowed, and 1.2 times more when the mortgage is a five-year loan.
He said that any adult under the age of 50 can apply for a loan, while those over 50 could qualify for a loan if they can prove that they have a stable income and are able to pay back the loan ahead of schedule.
Kylymnyk said that since 1998, Arkada has issued about 2,500 mortgages worth Hr 186,688 million.
“We have no concerns about any of the loans in our mortgage portfolio,” Kylymnyk said, adding that many borrowers are anxious to repay the loans ahead of schedule.
Borrowers who do have problems are encouraged to either extend the terms of the loan or to sell the apartment, paying off the mortgage contract.
Before signing a mortgage, homebuyers receive extensive counseling from bank employees on the loan’s terms and the rights and responsibilities of the parties.
In September, Arkada launched a program aimed at helping homebuyers unable to make a down payment, but who can save for one over four years. Under the program, potential homebuyers make monthly deposits toward a down payment. After the needed sum has been collected, the bank grants a mortgage at a discount interest rate of 4 percent to 5 percent, adjusted to inflation.
Kylymnyk said that a similar system is widely used in Germany.
Despite the lack of a mortgage law, experts say that Ukrainian banks are trying to develop their mortgage lending operations.
Anton Usov, a spokesman for the European Bank for Reconstruction and Development, said that in addition to continuing its institution-building work with local banks, it is also continuing its work with the non-banking financial sector to develop the mortgage lending business.
Andry Shapoval, head of the loan department at Aval Bank, said that when Aval began issuing mortgages one year ago, the bank’s managers said they never imagined that so many people would apply for loans. He said that the bank has issued 450 mortgage loans, but the number of people applying is far more than the bank can accommodate.
He attributed the unexpected phenomenon to an improving economic environment.
Shapoval said that the government’s failure to provide privileged categories of citizens with free apartments, as was the case in Soviet times, is another reason why more people are applying for loans.
Banks are providing mortgage loans in Kyiv, Dnipropetrovsk, Odessa, Lviv and Crimea, Shapoval said.
He predicted that banks would cut their interest rates on the loans and extend the loans’ terms in the near future.
