| In Turkey, home loans ('Konut Kredisi' in Turkish) have | | | | of the new Turkish mortgage law already made a |
| been used for some time even though there was not | | | | few banks (e.g., HSBC, Sekerbank and Finansbank) |
| a mortgage law similar to the ones in other countries. | | | | give loans up to 30 years to finance. It is expected |
| On March 2007, the first-ever Turkish mortgage law | | | | that the other lending institutions will offer similar |
| was approved and a new home loan system started. | | | | mortgages in the near future as interest rates |
| Here we review the changes brought with the new | | | | decrease further and demand for longer mortgages |
| mortgage law. | | | | continue to increase. |
| Below is a list of important changes that are brought | | | | Lending Institutions |
| with the new mortgage law in Turkey: | | | | Before the mortgage law, only deposit, investment and |
| New Mortgage Products | | | | participation banks could issue home loans. Under the |
| Before the mortgage law, it was only possible to lend | | | | new law, however, consumer funding companies are |
| home loans at fixed interest rates. The law introduced | | | | able to issue home loans too. A few mortgage |
| floating interest rates (or a combination of fixed and | | | | companies are in the process of starting their |
| floating rates) as an additional mortgage type. In | | | | operations; it is likely that the growing competition will |
| floating rate loans, the interest rate is determined from | | | | lower the interest rates, which are very high when |
| the sum of a fixed margin that is determined by the | | | | compared to those of developed countries. Let's also |
| lender and the inflation rate as measured by the | | | | note that as these new lenders are allowed to invest |
| Consumer Price Index. This way banks do not have to | | | | in capital markets to create funds for the home loans, |
| face the interest rate risk on their own and may share | | | | it is expected that the financial markets will develop |
| the risk with the borrowers. In summer of 2007, some | | | | and will have indirect positive effects on the rest of the |
| banks started to offer variable interest rate loans but | | | | economy. |
| so far there does not seem to be much interest in this | | | | Early Payment Fee |
| new type of mortgages and more than 99.9% of the | | | | Before the law, there was no penalty for early |
| loans are still fixed-interest rate mortgages. | | | | payment of the loan, however, due to the pressures |
| Tax Benefits | | | | from the banks, the new mortgage law included a |
| Before the law passed on March 2007, there were | | | | penalty up to 2% if borrower pays before due date. |
| some plans about providing tax relief to borrowers, | | | | This early payment fee is only valid for the |
| however, the only tax relief mortgage law provided | | | | fixed-interest rate loans. There is no penalty for the |
| was a minor 5 percent Banking Insurance Operating | | | | adjustable interest rate loans; they can close their |
| Tax (BSMV) exemption and abolishment of several | | | | accounts any time without incurring a charge. |
| other smaller operating fees. As an example, before | | | | Securitization of Loans |
| the law passed a monthly mortgage interest rate of | | | | With the new law, banks are now able to bundle the |
| 1.30% would be actually 1.3965%. For a 10 year loan of | | | | loans into securities creating covered bonds and |
| 100,000 YTL, with BSMV exemption the new | | | | mortgage backed securities. Covered mortgage bonds |
| mortgage law reduced the monthly payment of 1,722 | | | | and mortgage backed securities are debt securities |
| YTL to 1,650 YTL, about 4.2% reduction in the monthly | | | | backed by cash flows from mortgages and let the |
| payments. | | | | banks eliminate or share the mortgage risk with the |
| Loan Length | | | | rest of the world in a secondary market. Let's also |
| Before the mortgage law, Turkish banks could offer | | | | note that Turkey's sub-investment grade sovereign |
| only shot-term loans up to a few years. This had a | | | | rating may not be a big problem in the making good |
| very limiting effect on the real estate economy in | | | | deals in the secondary market as covered bonds |
| Turkey. Because of short maturities and high interest | | | | typically get higher ratings than the sovereign ratings of |
| rates, funding of houses was mainly done with savings | | | | the countries. Therefore we expect that the |
| (60+ percent) and relatives/friends (about 25 per cent). | | | | secondary mortgage market is likely to stimulate the |
| The home loans were only making less than 5 percent | | | | growth in the mortgage market substantially and |
| of the total housing funding. | | | | decrease the interest rates when it starts to operate |
| With the new law in effect for about 6 months, this | | | | in early 2008. |
| picture started to change dramatically. The introduction | | | | |