mortgage laws passed
Because of the high interest rates (currently, the monthly mortgage rates around 1.3 percent) for long-term loans that have mortgage loan terms are very short in Turkey. While loan term for most of the developed countries is usually 15 to 30 years in Turkey, most people a home loan with a maturity of 5 to 10 years. Currently 50 percent of new loans to their original duration 5 to 10 years, about 22 percent of new loans have a maturity 3 to 5 years, and about 20 Percent of new loans have terms of 10 to 15 years. None of the remaining conditions of the loan (ie less than 1 year, 1 to 3 years, 15 to 20 years and 20 to 30 years) has a share of more than 5 percent in the new loan. So, if we assume that the loans that less than 5 years are very short term, very short-term loans represent approximately 30 percent of all new loans.
The length of the repayment period is determined mainly by interest rates. A look at the historical data shows even this very clear. For example, in the summer of 2006, Turkey, together with other emerging countries, went through a brief crisis, rising interest rates triggered strong in a few weeks time. During this time, we also see the demand in 5 to 10 years' credit declined sharply and issued only about 25% of new loans with a maturity of From 5 to 10 years in September-October 2006 period.
During this period of increased prices, we also see that the share of loans with maturities of 3 to 5 years by 20 percent jumped to about 60 percent, again showing that interest rates are determining the loan terms clear.
How has the new mortgage law to the loan terms?
In March 2007 the first mortgage law in Turkey has been approved. This law provided for some tax advantages for the borrower, gave some rights to the banks, secure their loans if the borrowers default, issued some penalty fees for borrowers if they are to repay the fixed-rate mortgages want before the due date, and prepared the foundations of the secondary mortgage market law, which is expected to operate beginning to 2008.
After six months passed the law, we begin to see some positive effects of the law in the mortgage market. Several banks also established for the investment and participation banks, to operate in the market, banks began to offer new mortgage instruments, and began to provide loans with longer maturities.
Quantifying the impact of the new mortgage Act on the mortgage loan terms, we estimated a vector autoregressive (VAR) model with three endogenous variables: percentage of very short term (1 to 5 years) in all new mortgages, shares of mortgage term (5 years +) in new loans and long-term interest rate. We are also a number of dummy variables for certain large unexpected Shocks, and a dummy variable to measure the impact of the mortgage of the new law on the loan term. Our estimates show that:
1) One percent Increasing the annual interest rate causes about 10 per cent increase in the proportion of very short term mortgage and a 10 percent decline in the proportion of long-term mortgages. This is consistent with what we have already mentioned. One reason, the mortgage is usually not more than 10 years that interest rates are high, and in Turkey, where they will take over in the spring of 2008, mortgage rates fall to 1.2 percent (about 0.10 percent less than the current ones), the proportion of very short-mortgage decline around 18 percent from its 30-percent level.
2) We have also found that new mortgage law had a statistically significant influence over the loan term. On the Basis of our model, we estimate that the mortgage law caused a decline of 6 percent, the proportion of very short-term loans. In addition to the 6 percent direct Impact on the loan, we also expect that the new law will have an indirect impact on the mortgage loans by reducing interest rates very soon, especially after The second mortgage market began in early 2008.
In conclusion, we found that high interest rates, the main cause of the high proportion of short-term Loans in Turkey have been. But with the help of falling interest rates and the new mortgage law, we expect that the proportion of short-term decline in new loans to less than 20 percent from the current 30 percent level in 2008.
About the Author:
Berk Akman works at KrediHavuzu.com, Türkiye’s online mortgage (konut, ev, arsa, iş yeri kredileri) broker providing interest rate, fee information and various advanced mortgage calculators for optimal mortgage design (e.g., Konut Kredilerini Karşılaştırma ).
Article Source: ArticlesBase.com – On Mortgage Loan Terms in Turkey
