Accountant Olga Didkevich, 36, took a mortgage to buy a 1-room apartment near the Lisova metro station in Kyiv last year. Now, instead of paying $200 in rent every month, she pays $260 in mortgage payments.
Despite paying more and being committed to a 20-year loan, Didkevich is happy she’s finally the boss of her own 31-square-meter apartment.
Just like Didkevich, many Ukrainians got mortgages last year, borrowing a total of Hr 3.8 billion ($137 million) from banks — 36% more than in 2019. Experts say such a huge spike happened due to a sharp decrease in mortgage rates — from 20.6% in 2019 to 14% today.
“If the rates don’t go up much, more and more Ukrainians will get mortgages,” said Olesia Verchenko, vice president at the Kyiv School of Economics.
The number of mortgages is still low, however: only 5% of agreements on the purchase of real estate are financed with them. Experts say the high rates are still the main reason and once the rates are affordable, more young families will try to own a least a tiny flat.
Standard options
Ukrainian officials had been promising mortgages at lower rates for a long time until, last year, the government decreased the central bank’s key policy rate from 16% in 2019 to 6% in 2020, making possible mortgages at a 10% rate.
But there’s a problem: Very few are eligible to get a loan at such a favorable rate.
PrivatBank, Ukrgasbank, Oschadbank, Pravex Bank and Kredobank — the only banks that work with this program — give 10% loans only to longstanding clients or particular categories of the population; some offer low-rate mortgages only for a short period of time. Each bank has its own rules.
State-owned bank Oschadbank, for instance, gives 10%-rate mortgages to civil servants and medical staff. Or it offers them an 8% rate for six months, after which, it increases to 13.5%.
And since the banks are so selective, most of Ukrainians have got to take loans at standard rates, 14%–17% rates.
Didkevich got one of such standard mortgages for her $27,000 apartment, at a 14% fixed rate, from Oschadbank.
Her other option was to take a mortgage at a variable rate — a standard offer by local banks. This rate is based on two things: a bank’s fixed rate and the Ukrainian Index of Retail Deposit Rates (calculated every day and dependent on Ukraine’s deposit rates). For reference, PrivatBank’s variable rate in on a particular day in February was 12.4%
Verchenko thinks that although it’s possible to save money by paying off interest based on a variable rate, taking out such mortgages can still be risky.
“If the (the NBU’s key policy rate) goes down,” she said, “you have a chance to lower your mortgage payment. But if it goes up, then mortgage installments will increase too.”
Lower rates
In 2021, some Ukrainians will have an opportunity to receive mortgages at even lower rates.
Initiated by President Volodymyr Zelensky, the government issued a decree on Jan. 27 on affordable mortgages at a fixed 7% rate. It will allow banks to give out nearly 5,000 mortgages worth $180 million this year, according to Finance Minister Sergii Marchenko.
On paper, people will still be taking mortgage loans at a 12–15% rate but will pay only 7%. The government will cover the rest to the banks through the state-owned Entrepreneurship Development Fund. The fund has allocated nearly $11 million for this purpose for 2021.
At the same time, experts raise concerns that if the government doesn’t budget this program in 2022, it will collapse, leaving many paying more than they were promised.
“Parliament is unpredictable, and this (program) may be lost during the budget consideration. This is, of course, a risk,” said Mykhaylo Demkiv, financial analyst at Investment Capital Ukraine.
But Demkiv also thinks that if this program does have success among people, the government won’t be able to neglect it.
As with the 10% mortgages, there are great limitations to who can take out a mortgage like this, however.
According to the program, borrowers can get a 20-year mortgage at a 7% rate for property that’s not older than three years old and not more expensive than $90,000. The maximum possible mortgage is $72,000 and the minimum down payment must equal at least 15% of the property’s price.
A borrower must be an internally displaced person, scientist, teacher, lecturer, medical worker or civil servant. Incomes of a borrower and family members mustn’t exceed the average monthly salary in the oblast where the new housing is located by more than 10 times. The area of the property cannot exceed 50 square meters if it’s a family of one-two people.
And these only basic requirements. The law specifies the rest.
As of March, seven banks joined the program: state-owned Ukrgasbank, PrivatBank and Oschadbank, as well as private Kredobank, Megabank, OTP Bank, Alliance Bank and Globus Bank.
OTP Bank and Ukrgasbank on March 1 already lent the first mortgage loans to two families — the Lapchenkos and Maximyuks. On the same day, a 32-year-old woman from Kharkiv got a 7% loan from Globus Bank.
According to Demkiv, this program can “shake the economy up.” Since the program allows to borrow money only for newly constructed flats, Ukrainians may be the ones to build it, moving to Kyiv, Odesa or Lviv for construction work — not to Poland.
“Money will stay in the economy,” Demkiv said.
The vast majority of Ukrainians selling apartments ask for the money in cash — often in dollars — because they don’t trust banks and, well, there are certain tax advantages in unreported income. The situation can reach absurd levels for apartments apartments costing $100,000 or more.
Lev Partskhaladze, president of the Confederation of Ukrainian Builders, supports this statement. According to him, every Hr 1 allocated to the construction, brings Hr 6 more to Ukraine’s budget annually; and it gives jobs to people.
Apart from this program, the government plans to start another one, through state Financial Housing Company (UkrFinZhytlo), founded by the Finance Ministry.
UkrFinZhytlo will also be an intermediary between banks and borrowers, but won’t be dependent on the country’s budget, as it will make money itself through a complicated scheme of shares and securities.
“The borrower won’t depend on the state budget money to cover the mortgage interest,” UkrFinZhytlo’s stated on Facebook.
If all goes well, the program will roll out in the middle of 2021.
Although many Ukrainians are waiting for interest rates that are even lower than 7%, experts say it’s hardly possible. The mortgage rate depends on the deposit rate, the discount rate by the NBU and inflation. If these figures rise, the mortgage rate will increase too.
The consumer inflation rate was 5% in 2020, not exceeding the NBU’s goal. On March 4, the central bank increased the discount rate from 6% to 6.5%.
“I don’t expect now that loans at the 1–2% rate are possible, because people aren’t ready to bring (money for) deposits at the 0% rate,” Demkiv says.
Anyway, Ukrainians will likely take out more mortgages, even at the 7% rate, but according to Demkiv, “it depends on whether (Ukraine) can keep inflation.”
