Turkey finally got its mortgage law, expected to help people own their own homes by paying installments almost equal to their monthly rents. The Parliament passed the bill on Wednesday, 21 February 2007.
New developments in Dikmen Valley, Ankara.
The tax incentives article, which the government had fiercely opposed arguing that incentives clearly ran counter to the economic program the country is pursuing at present, was pulled out from the law at the last moment. This move made it harder for low income people to have a house via mortgage loans.
Abdüllatif Şener, state minister and deputy prime minister, said the law would not benefit those who belong to lower income classes but would help higher income people that have not had enough accu-mulation of capital to own a house.
In accordance with the Treasury, AK Party members of Parliament presented a formal proposal to nullify the Article 29 of the law, which suggested providing loan users the option to deduce the amount of loan's interest payments from their tax base. This move made it harder for low income people to have a house via mortgage loans. If the article had been included in the law, a person who takes a loan of YTL 100,000 for 20 years would earn some YTL 16,000 in total, and his or her monthly payments would be YTL 860 instead of YTL 1,075.
The law also makes it possible to take advantage of mortgage loans for the houses that do not have a license from the Housing Development Administration of Turkey (TOKÝ). That means mortgage loans may be used for projects under construction by TOKÝ.
Minister Şener said: "This is one of the most important reforms in the Turkish financial system ever." He also noted that this law was not for everyone, but those who have a certain quality of living already. "It is not true to think that the people without ability to pay will get loans and have a house. People will have the loan only if they decide that there will be no problem in paying back on a deliberate payment schedule. If he or she doesn't take the conditions of payments into consideration, they will suffer. Instead of living without debt and without excitement, I would prefer living indebted but happy."
It is estimated that Turkey will need some seven million new houses in the coming decade. Almost half of this need will come from population increase, and some 1 million will stem from migrations. Around 800,000 houses, however, will be built for restructuring and renovation projects. Some 1.5 million houses will be built for urban transformation projects.
What will the system bring?
- The consumer will be presented with two options of interest rates, fixed or variable. Those who choose the fixed interest option will pay the same amount for all of their monthly installments and will not carry the risk of huge hikes in the interest rates. The initial interest rate will not change unless the two parties agree to do so. For the variable interest option, however, if the interest rate goes below or down to a certain interval, the bank will arrange the rates of the debt accordingly. This will make it possible to lend money with longer maturity dates and allow for lower interest payments since the risk management will be easier for the loan supplier. The possible adverse effects of this option will be explained to the customer in detail. The reference interest rates and indexes for this option will always be determined by the Central Bank and the methods and principles regarding the informing of customers will be described by the cabinet.
- Besides deposit, investment and participation banks, consumer financing companies will also be able to provide mortgage loans. But they will have to wait for six months after the law comes into force.
- Loan supplier institutions will always present the customers with a document of information about the loans. These forms will include all information about interest rates, possible payment schedules, etc. in detail.
- Loans will not be given without cash payment.
- For the customers