Mortgages help provide stability in world economies
Posted by meb at March 26th, 2007
As discussions are under way about the timing of the mortgage system in Turkey, the experience of other countries so far indicates that the system is usually adopted in times of financial instability. Data obtained by the Anatolia news agency from the Capital Markets Board (SPK) show that mortgage interest rates were higher than those of T-bills when the mortgage started to operate in particular countries; however, they have gradually come down and even fallen below the rates of bonds and bills.Hungary’s experience is a clear indicator of how mortgages can affect the capital markets in the middle term. The system came into force in Hungary the early ‘90s when there was no comprehensive housing policy, when the construction sector was in the middle of a slump and when housing prices and interest rates were in an upward trend. Following the introduction of the mortgage system, however, interest rates fell to 5 percent from 20 percent in five years’ time. At present, the interest rate for a 10-year mortgage is 1 percentage point below the rate of a 10-year Treasury bill.
Mexico is another example of the deep impact of mortgages. Mexicans were introduced to the system when they were suffering from interest rates of 35 percent, and it took only a few years for the rates drop to levels of around 10 percent. Similarly, the system saw the Colombian markets experience a resurgence immediately after the stagnancy of 1998 and 1999. In Spain, the mortgage system started operation between 1976 and 1984, when the country was in a period of high interest rates during a critical banking crisis; however, real interest rates declined from 17 percent to 9 percent in a short period of time. For the moment, the country is enjoying a 3.8 percent mortgage rate. The SPK’s data also point to the fact that the mortgage system is a very crucial instrument in the US in providing stability for the growth of the economy. The real income and expenditures of consumers are rising in terms of stagflation thanks to the refinancing procedure of fixed-rate housing loans. In Turkey, the interest rate is 14.6 for Treasury bills, whereas average interest rates for housing loans are at 21 percent.
source: Today’s Zaman
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