State bank VÚB, its Bratislava headquarters shown above, hopes to profit from a new banking law which allows the state to subsidise mortgage interest rates.
foto: Vladimír Hák- Profit
The two Slovak banks currently offering mortgages - Všeobecná Úverová Banka (VÚB) and Slovenská Sporiteľňa (SLSP) - welcomed the move and said that they expected the demand for mortgage loans among both private citizens and businesses to increase after the law is passed. Although the bill is still in its second reading in parliament, the local banks say they expect the plan to take effect within a month.
Real estate professionals were also optimistic the subsidies would kick-start a moribund real estate market. Although the amendment will not remove all obstacles facing prospective home-owners in Slovakia, analysts said, it should still boost home starts and sales.
"This means quite a lot, 6% is a lot of money," said Igor Federoňko, the statutory representative of Bratislavská Realitná Kancelária (Bratislava Real Estate Office, BRK). "Although it won't help everyone, I would say it will allow another 10% of potential purchasers to get a loan."
Boosting the market
In a recent interview with the daily newspaper Národná Obroda, Ľuboš Ševčík, VÚB's Mortgage Loan Division Director, agreed that the new plan would boost the Slovak real estate market.
"We are currently experiencing a decrease in the price of flats and houses in Slovakia," he said. "Many real estate specialists feel this is due to unsolved problems in financing the building and purchase of real estate."
In November 1998, Construction Minister István Harna announced that the State Fund for Housing Development, which many Slovaks relied on to be able to buy real estate, had run dry. In place of the Fund's 1-3% interest rates, would-be homebuyers were left with two options; borrow from friends, or take a mortgage at an exorbitant rate of interest.
While VÚB had issued only 250 million Slovak crowns ($6 million) in mortgage credits over two years since being issued a mortgage license in March, 1997, Ševčík said he was convinced that mortgages were the future of the Slovak real estate market. "The mortgage credit system is the basis for financing housing around the world," he said. "I am convinced that at an interest rate of 7.5%, a comparatively large group of people will be able to look after their housing needs through mortgage loans."
Currently, VÚB's mortgage loans carry an interest rate of 13.5% (17.2% for businesses) and can be as high as 2.5 million crowns. Loans are repaid on a monthly basis over 5 to 30 years.
At state bank SLSP, no maximum limit exists on loans and the interest rate is 13.25%, said Jarmila Jurkovičová, director of the bank's mortgage loan division. The window for repayment falls between 5 and 15 years.
Both banks require clients to prove they can repay the loans, and to provide real estate as collateral to back the credit. At VÚB, this real estate collateral may be owned by the recipient of the mortgage or his family or friends, and must be worth at least 60% of the credit issued. At SLSP, the collateral must be worth 167% of the loan.
But with interest rates over 13%, Adriana Litomerická, owner of the Prvá Narodná Aukčná real estate firm, observed that for the majority of Slovaks earning a salary of 10,000 crowns per month, the only reasonable means to purchase a home was by borrowing money from relatives.
The relative scarcity of mortgage loan seekers has tended to confirm Litomerická's view. VÚB has approved only 300 mortgage loans in over two years, 75% of which have gone to private citizens. SLSP, meanwhile, began their mortgage loan programme this year on July 1. At the time The Slovak Spectator went to print September 23, SLSP had yet to approve a single loan.
However, once the goverment subsidies kick in, VÚB and SLSP will be offering interest rates of 7.5% and 7.25% respectively. As VÚB Vice President Ján Szalay pointed out, on a loan of between 500,000 and 600,000 crowns, average monthly payments at 13.5% amount to 7,613 crowns - at 7.5%, however, those monthly payments fall to 5,935 crowns.
This change alone has stirred optimism. "It's a very good change," Litomerická said. "It's not the final solution, but it's a step in the right direction. This is what we've expected from the new government all along. Last year the situation was very critical, but this is a good sign."
Litomerická added that she doubted the move would have a great impact on Slovaks in their 20's just starting out in their careers, but stressed that 30-somethings with sufficient savings would benefit greatly from the government subsidies.
Federoňko, for his part, said that even for recent school graduates, the new loan conditions could prove more advantageous than renting a flat. "For a good, one bedroom flat you have to pay around 10,000 crowns a month," he said. "But, with the new rates, you'll spend less monthly and in 15 years or so you'll own the flat."