The head of the National Bank, Jacob Smoly, has recently announced a possible reduction in the interest rate to 8%. According to him, there are currently all prerequisites for its reduction at a faster rate. What impact this will have on the economy as a whole and the real estate market in particular, as well as how to prepare for such a long-awaited event already, said Mind CEO and managing partner of the developer company DC Evolution Andriy Ryzhykov.
What to expect from a rate cut:
1. An 8% discount rate will allow banks to issue loans at 10-12% per annum, which will allow them to restart their mortgage lending in Ukraine.
2. At this discount rate, deposits will cease to be super-profitable, which means that the simplest, predictable and understandable way of making money will be real estate.
3. Private real estate investors will return to the booming real estate market.
4. The growth of the market may provoke the appearance of unprofessional and unscrupulous players, so there is a risk of new construction pyramids.
In the wake of the 2008 financial crisis, which has hurt the mortgage reputation, Ukrainians are in no hurry to use this popular financial instrument around the world to buy real estate.
First of all, because they made most of their loans in foreign currency and, after a sharp jump in the dollar, simply became hostages to the financial yoke.
The second reason is the cost: like decades ago, a hryvnia mortgage is a very expensive treat. But only it is able to meet the huge pent-up demand for housing in Ukraine. That’s why both developers and buyers and financiers are waiting for it to restart at new, adequate rates.
How to prepare the market
Reservation. In fact, even today there is a mortgage in Ukraine – it is very expensive and as a consequence unpopular. The regulator has placed very stringent requirements on banks to reserve money for mortgage lending, and it is easier for them to lend to the real economy, where there are fewer risks and less resource required. Therefore, in order to fully launch a mortgage, the National Bank must not only lower the discount rate, but also review the reservation rates.
Insurance. The civilized market implies mortgage liability insurance. But in Ukraine, the insurance market is more fabulous than the real one, and until large foreign companies come to us fully, there may be difficulties with a mortgage. The better the mortgage insurance, the more secure the loan is for the bank, and the more willing the banks will be to lend at any discount rate.
Scoring. The person who takes out a mortgage loan is obliged to confirm their income, but if they are not only “white” then obtaining the consent of the bank may not be easy. That is why we need a zero declaration that will whiten previously received funds. But to buy an apartment of the sum collected may not be enough and the mortgage here is just right. According to experts, “under the mattress” is four times more money than in the banking system.
Swaps. In 2006-2007, even before the first crisis, a lot of mortgages were issued, from which portfolios were formed for resale. Later, derivatives were issued under them, and then derivatives into derivatives. This is how the pyramid of already secondary securities swelled. These swaps (transactions in the form of exchanges of various assets, in which the conclusion of the purchase (sale) agreement is accompanied by the conclusion of a counter-sale (purchase) contract of the same product for a certain period under the same or different conditions) were sold, resold, and then under these swaps other loans were taken. And the swollen pyramid burst. Therefore, today we must do everything possible to prevent this situation from happening again.
What is important for future borrowers
• Individuals will not be able to issue a loan in foreign currency – it is forbidden at the legislative level and the chances of recovery are minimal. But if it does, you need to take out a mortgage only in the currency in which you earn income.
• Of course, you can choose any apartment you like on the market, but a safer option – a partner program of the bank and the developer for a specific object. In this case, the bank itself checks all documentation and controls the construction, as in the future it does not want to have problems with unreliable objects.
• Be sure to check the object using audit services such as Monitor.Estate. This will allow you to initially screen out unreliable objects and not get into a situation where the object is not completed, and continue to pay the loan.
• Be financially and legally competent: understand the specifics of forming commissions, use online calculators to calculate percentages, read the contract you sign, and especially the text in small print.
• Being honest with yourself and not trying to trick the bank. If you first realize that you are not pulling, it is better not to start this epic at all. It is better to choose another item cheaper or delay your purchase.
• Collect money. The larger the down payment, the easier it is to credit – better conditions, lower interest rates, less overpayments and quiet