Perspectives of mortgage credit financing

Buying property is a usual thing for Ukrainians today. Few years ago the buying in a credit did not increased 10% from the total bulk of property transactions and today the purchase of property in a credit increased 60% and this tendency is continue to develop.

We could expect that to 2010 about 90% of property will be buying with help of credit money. In Odessa, Donetsk and Dnepropetrovsk regions increased the number of mortgage credits.

It happened because of changing of bank politic as to mortgage credit financing. Before, banks were oriented on credit financing of legal persons, now they pay more attention to credit financing of physical persons.

Number of banks from 2006 put new mortgage credit financing program of physical persons on the primary and secondary markets. Taking into account the specific of the market of property construction, a lot of banks without the limits of their credit programs offered to make loan for physical persons on security of corporate stocks or certificate of participant of financial construction fund. As a result the problem of pledge is solved while credit financing of the property which is under construction, as according to the Ukrainian legislation off plan construction could not be the object of pledge.

On the stage of construction, physical person raise a credit in bank for which buy corporate stocks or make a payment in financial construction fund and with help of this fix the price of property on the first level of construction. While construction of property and growing prices, physical person-creditor is protected from range of prices and does not bare losses because of growing priced for property.

A lot of banks make loan for purchasing property under construction for the term 20-25 years, for example, “Ukrgasbank” makes loan for 30 years. It lets to physical persons invest money on the first stage of construction when the price is on the lowest stage. Estimate the risks connecting with construction of properties goes by the way of accreditation of developers, which helps estimate business reputation of developers and exclude risks which are connected with non-fulfillment constructions’ duties. Using the system of accreditation, banks give an opportunity to the physical persons orient in a safety level of this or that developer.

Also mortgage credits for buying the property on the secondary market are highly popular. A lot of physical persons use mortgage credits only with a purpose of improving their living conditions. Where the majority of borrowers take the credit for the part of the cost of property other part of property pay either by collected money or selling other property.

Selling of one bedroom flat and receiving the credit for buying two bedrooms flat – is the most popular scheme of credit financing. In these conditions for borrowers the biggest role is work of property estimators which goes in security for.
Numbers of banks create their service of property estimation what helps quicken the process of analyses and estimation of property cost. Other banks use accreditation of specialized estimators with a purpose of selection of reliable specialists. Both of these approaches have different level of work effectiveness.

As to credit financing of secondary property, banks leads the politics of wideness of given conditions. For borrowers give privileged period of credit financing when borrower has a right not to pay off the sum of the credit but just pay the interests of the credit. This privileged period fixes only in the first year of credit contract’s work. Also bank offers to make a loan for buying property and for repair it after buying. It let borrower at the time solve the problem of improving his living conditions.

For furthering development of the mortgage credit market there is still a problem of sum of borrowing costs. Credit financing physical persons for buying a property in foreign currency is negative for development of whole bank’s economic sector. Make loan in dollars for long period, banks usually draw money on hryvnas’ deposits for a short period. It creates disproportion and does not let to decrease the cost of hryvnas’ credits. Liquidation of this imbalance could be solved by creation the mortgage obligations market.

In Ukraine the mortgage obligations market is starting to form. At the beginning of the year “Ukrgasbank” was first which issued mortgage obligations which lay the foundation of forming new conditions of credit financing. Mortgage obligations were issued in hryvnas and sold by 10,2% annual. It let decrease the cost of loans and creates good conditions for decreasing rates of mortgage hryvna credits.

First issuing of obligations did not radically changed the situation on the mortgage credit market, but soon it is expected to issue obligations by other banks what helps forming the refinancing market of mortgage credits. It is expected that rates of hryvnas credits will decrease to 12-14% annual and in perspective may be lower than 10% annual. In this case the number of people who could raise a credit for buying property will increase. However, this question is taking into consideration as perspective, but in this year historical trends decreasing the rates by hryvnas’ credits and closing to foreign currency credits.