A Finance Ministry proposal which would allow mortgagees larger credits on houses has been welcomed cautiously by analysts and banks, who stress what they say is the "immaturity" of the current market.
As part of proposed legislation on banking supervision, the Finance Ministry confirmed March 11 that the maximum volume of mortgage loans that could be taken would be raised from the present level of 60% to 70% of the desired property.
While the move would give people larger credits, analysts have said that existing restrictions will still severely limit the number of people available to take mortgages.
"The rise to 70% won't make that much difference because mortgages are something for a wealthier group of citizens anyway," said Pavol Ondriska, analyst at Bratislava brokerage house Slávia Capital. "Mortgages are mainly for people with a lot of money already, the rich," he added. "So 10% won't mean much."
Despite the relative unimportance of the rise, analysts and mortgage market players are optimistic for the future of the sector, seeing it as a fledgling, but potentially rewarding banking field. While experts agree that tough conditions for obtaining a mortgage - 140% collateral is needed and the property to be bought cannot be pledged to secure the loan, meaning another piece of real estate has to be owned before anyone can even apply for a mortgage - have not helped the market's expansion, the sector has seen a mini-boom in the last year.
In the past 12 months, the number of institutions offering mortgage loans has doubled. However, while the rise is only from three banks to six, with one more finance house having applied for a licence, the effect on the cost of loans has already been seen.
In February, Istrobanka, Slovenská sporiteľňa (SLSP), Všeobecná úverová banka (VÚB), Tatra Banka and HypoVereinsbank Slovakia all cut rates on their mortgage loans, the reductions ranging from 0.75% to 1.75% in the case of SLSP. The sixth bank with a mortgage licence, Bank Austria Creditanstalt, has yet to offer mortgage services.
The moves lowered the average interest on mortgage loans to 10.2%. Combined with a state subsidy of 5%, the average citizen can now obtain a mortgage with 5.2% interest. "This is a really, really low rate," said Tomáš Kmeť, analyst at SLSP.
And while the rates are forecast by banks and analysts to stay at this level, the market itself is likely to grow. Since 1999, two billion crowns ($42 million) have been granted in mortgage loans. That figure is expected to more than double this year.
"We are very positive about the development of the mortgage market," said Norbert Lazar, spokesman for VÚB, which holds a 70% share of the mortgage market. "We have so far lent 1.2 billion crowns in mortgages [since 1997] and we want to add another 1.5 billion to that by the end of this year, bringing us up to 2.7 billion in total. That's a measure of our confidence in the market."
SLSP's Kmeť added: "Over the next five years we're likely to see stronger competition in mortgages as the market develops from what is now an underdeveloped, almost completely new one to a more mature one. Banks will start to focus more and more on mortgages as a type of loan. Mortgages are the cherry of any loan portfolio."
But despite what VÚB bosses have said is a growing interest in mortgages, and predictions from the Construction and Regional Development Ministry that by 2005 mortgages would constitute 35% of home construction in Slovakia, the tough eligibility criteria for mortgages are still restricting many people from taking such credits.
"I know the Finance Ministry has said that it is concentrating [housing] policy more on mortgages than the savings construction fund [a fund which people can pay into until the balance reaches half the value of a desired property, at which time a credit is extended for the remaining sum - ed. note] but the regulations for obtaining one are very restrictive," said Kmeť. "This needs to change."
As well as the difficulties involved in qualifying for a mortgage, other problems on the housing market are preventing the market from growing rapidly. Under current law, anyone wishing to sell residential property before they have owned that property for two years has to pay a tax - as much as 30% in some cases. For a flat worth 3 million crowns that would mean a tax payment of 900,000 crowns.
Despite the potential drawbacks, the market is growing and sector experts remain convinced this growth will accelerate in the near future.
"It is a young market. The first mortgages were only granted in 1997, so it has a very short history. However, there is very strong growth potential, especially with the government's state support policy," said Slávia's Ondriska. "The condition of the housing market is such that any way to give easier mortgages will be a good thing. Everyone wants a house or a flat to live in. It's a normal desire for people."
