YEAR OF MORTGAGE HOPE

2012 promises to be very reassuring for families who have been looking forward to positive changes in mortgage lending. Criticizing the amount allocated from the budget for the financing of the social mortgage programme in Azerbaijan this year, the head of the Central Bank of Azerbaijan (CBA), Elman Rustamov, promised that today it is possible to alleviate the conditions of the social mortgage. "This issue is especially acute and can be solved next year," he said.

Demand and risks

According to the country's chief banker, the social mortgage is a very important social programme, but it is also an economy-oriented programme as it supports the construction sector and creates new jobs there. The approved contingent entitled to social mortgages makes up 100,000 people now. "Given that the maximum size of the social mortgage is just 35,000 manats, it turns out that the 20m manats envisaged by the state budget in 2012 will be sufficient to provide mortgages only for 600 people," Rustamov said.

The chief banker's concern is explicable: the banks have already registered requests for social mortgages worth about 80m manats. And the flow of requests is continuing, and there are no financial resources to meet them. But low-income people, for whom the preferential mortgage is probably the only hope to buy their own homes, are waiting for this money.

Preferential conditions apply to members of martyrs' families, families of national heroes, internally displaced persons, public servants with a minimum length of service of three years, candidates and doctors of sciences, people with special achievements in sports, as well as army personnel with a minimum length of service of three years. Every family entitled to a preferential mortgage loan may use it only once. Under current conditions, the maximum amount of the social mortgage is 35,000 manats with an annual rate of 4 per cent, and the amount of the ordinary mortgage is 50,000 manats with a rate of 8 per cent.

According to a study by the CBA, the country needs social mortgages worth 100m manats on average per year, CBA Deputy Chairman Aftandil Babayev said. "This is precisely the amount that could be more tangible and efficient and do more good for this category of people," he concluded.

However, the Azerbaijani Ministry of Finance has a slightly different opinion concerning this problem. For example, Minister of Finance Samir Sarifov noted that in many countries, financial problems started exactly from the mortgage market as mortgage loans were allocated in large volumes. And today, the problems in Greece and many European countries are connected with the allocation of cheap mortgages. "The state cannot provide funding on a continuous basis, in such quantities and at low rates for 20 years (the period for which the mortgage loan is issued), and from this point of view, we should be very cautious about increasing budget spending to finance social mortgages," the minister said. "We should take a responsible approach to the issue of increasing budget spending on social mortgages by 50 times on an annual basis, because in addition to problems of inflation, the duration of such funding is the main issue.

Solving the problem

The minister is right, of course - there is no need to risk the country's economy amid growing expectations of a second wave of the global economic crisis. But the housing issue for most people who apply for social mortgage is acute and requires a prompt solution. Given that a budget of 20m manats has already been adopted and approved for social mortgages, the Azerbaijani Mortgage Fund under the CBA is going to address the problem by attracting additional resources. Most local banks also issue mortgage loans, and the Mortgage Fund attracts substantial funds from the market by placing mortgage bonds. "But in 2012, we will be looking for additional resources to meet the country's needs in mortgages," Rustamov promised.

According to him, banks are already using funds from international financial institutions as part of their own mortgage programmes. Work is under way to simplify lending conditions for social mortgages. "We hope very much that some steps will be taken in this area in 2012," Rustamov said, adding that today it is possible to alleviate social mortgage conditions.

For example, the CBA has prepared proposals to improve young families' access to mortgage lending. CBA Director General Rasad Orucov said that the adoption of these proposals will expand the list by at least several times, and this figure will exceed 150,000 families. By the way, the Central Bank's plans in this paragraph are also backed by the Ministry of Finance, which was stated by Sarifov.

In addition, preferential mortgages for young scientists may "grow up" in Azerbaijan from 2012. According to the head of the Centre for the Intellectual Development of the Youth at the Azerbaijani National Academy of Sciences (ANAS), Ilqar Orucov, scientists below 35 are considered young scientists in Azerbaijan today, so only they can enjoy preferential mortgages. To amend these rules, the ANAS has prepared its own proposals. They stipulate that not only scientists below 40, who have families and scientific degrees as doctors of philosophy and science, but also young scientists who have no family can obtain mortgage loans. "These proposals have already been agreed with the relevant agencies," Orucov said. At the beginning of next year, it is planned to adopt a document that will include the proposed changes. According to him, after the proposals are approved, scientists aged 36-40, who need homes, will also be able to purchase housing, taking advantage of the preferential mortgage loans.

The Central Bank is also preparing proposals to change the terms of mortgage loans. "We believe that the maximum amount of loans should be increased both for social and ordinary mortgages. We are considering various options, and perhaps, they will be increased by at least 1.5 times, i.e., loans for ordinary mortgages will increase to 100,000 manats and social mortgages - to 60,000, which will correspond to market prices for housing," the director-general said.

Orucov also outlined plans to change interest rates on mortgages, without naming the level of rates to which they can be reduced. However, the period for which mortgages are issued will not be reconsidered, because they correspond to international practice and are at acceptable levels, the director general of the CBA said.

It must be remembered that today mortgage terms are as follows: loans are allocated in local currency and only to Azerbaijani citizens, the subject of the mortgage can be only an apartment and a private home, the amount of the mortgage loan should not exceed 80 per cent of the market value, the monthly payment for the loan should not exceed 70 per cent of the borrower's monthly income, and a contract on life insurance is a must. In addition, there are other conditions.

The Central Bank also maintains an interest in the establishment of a housing and savings bank in the country and is considering launching this mechanism. Proposals to improve the country's mortgage mechanism prepared by the CBA also cover the creation of a guarantee fund for mortgage lending. "Under our proposals, it is planned to establish such a guarantee fund, which will enable people who have no primary savings, but have normal financial status and income, to buy an apartment using a mortgage," Orucov said.

In other words, the coming year should expect serious changes in mortgage lending, and of course, apart from solving the important issue of housing, they will also have a positive impact on the stability and development of the construction sector.