Turkey mortgage costs hit year low helped by state-run banks

Interest rates on Turkish mortgage loans hit a one-year low after state-run banks responded to a government request to slash their cost, local media including Sabah newspaper reported on Friday.

Interest rates on the loans have dropped to an average of 13.64 percent per year on Aug. 9 from 20.49 percent on July 26, Sabah said citing central bank data. In monthly terms, average rates have fallen to 1.13 percent from 1.7 percent, it said.

Turkish state-run banks Ziraat, Halkbank and Vakıfbank slashed the cost of mortgage loans to 0.99 percent monthly from 1.49 percent at the start of August to help revive the housing market, which has entered a painful slump that deepened after a currency crisis last summer. They are offering the cheap loans over as long as 15 years.

Large non-government banks are typically offering 10-year mortgages at an interest rate of between 1.36 percent and 1.98 percent monthly.  It is unclear how much capital banks have set aside for the lending. Fifteen-year loans from such banks generally cost more than 2 percent a month in interest payments, according to online mortgage broker hangikredi.com.

The amount of home loans in the financial system increased by 251 million liras ($44 million) to 178.7 billion liras in the week ending Aug. 9, Sabah said. Demand is set to further increase the number of homes sold via mortgages in Turkey after a revival observed in July, it said.

Sales of homes in Turkey fell at the slowest pace in three months in July. They dropped by an annual 18 percent to 102,236 units, the Turkish Statistical Institute said this week. That compared with a 49 percent decline in June. Sales of homes via mortgages fell an annual 57 percent to 13,064 units against a decrease of 85 percent in June.

Residential property prices in Turkey slid 12.1 percent in June from a year earlier, when including the erosive effects of inflation on an asset’s value, the central bank said on Thursday. Prices rose an annual 1.72 percent in nominal terms, it said. Consumer price inflation stood at 15.7 percent in June and 16.7 percent in July.

Economists and investors are calling on Turkey to offload a growing pile of bad debt in the construction industry into a “bad bank” or into special funds that can be sold on. That would bolster banks’ finances and help encourage lending, they say. The government has so far ruled out any state financial aid for such initiatives.