Earlier this year the Turkish Government passed a ground breaking law that will formalize the way forward for banks to offer domestic mortgages.
Earlier this year the Turkish Government passed a ground breaking law that will formalize the way forward for banks to offer long term property mortgages. The new law will come into effect on 1 January 2008 but some Turkish Banks are already trailblazing and offering loans to Turkish Citizens as well as ex-pats.
Up until now the only way to buy a Turkish property was with cash. Most ex-pats either used cash from their savings, the sale of their European property or released the equity on their own home by remortgaging. Turkish people used family money to buy outright or took out expensive short term home loans. However, the new reform will now make it possible to raise a mortgage on Turkish soil potentially paving the way for more of the population to own their own homes.
We don’t expect the take up of Turkish mortgages to be too great in the initial stages as interest rates on the YTL are currently so high. With a base rate of around 22.5% the interest rate or the upfront fees on mortgages are likely to be high. However, as the reforms have allowed variable rates to be charged the take up may improve as interest rates decline in the future.
Financial companies are getting very excited about the new mortgage system and are gearing up to tap into this lucrative market and its associated spin offs such as insurance. So despite the potential for high interest charges, we expect competition will be fierce with banks and lenders battling to offer the best rates thus gaining market share and potentially benefiting the borrower.
The Government will also be watching the development of the market closely as increased home ownership will bring in more property related tax and provide an effective way of controlling inflation as any changes to the interest rate will hit the home owner in the pocket thus reducing spending.
Some Turkish Banks are already trailblazing ahead of the 1 January and offering loans to Turkish Citizens as well as ex-pats. At present these loans are only available in GBP, Euros and US Dollars but the rates are much less than those that will be on offer in Turkish YTL. One company Istanbul Mortgages is currently offering mortgages to buy Turkish property at 6.9% fixed. Mortgages are available for up to 20 years and at fixed rates in US Dollars, Euro’s and GBP. The company also offers buy to let mortgages for those with a stomach for a leveraged (funded by loan) foreign property investment. For those unsure of the process to follow their website details the whole system and all of the fees payable – a refreshing change.
The introduction of the mortgage system into Turkey should also bring more security to buying property; a process that is commonly littered with pitfalls. Lenders will be very keen to ensure their loans are safe and will require detailed checks of the Tapu (deeds), legal contracts, building permissions and structural surveys before releasing funds. This should provide the person buying on a mortgage with a much higher level of security than the average cash buyer.
Finally, if you do decide to take out a Turkish mortgage make sure you shop around as fees, interest rates and other costs such as arrangement fees will vary considerably. The Turkish financial comparison website www.finzoom.com.tr (in English) can help you to see the wood for the trees. Also bear in mind that mortgages taken out in currencies other than your home currency will be subject to exchange rate fluctuations which could either increase or reduce payment.