The NBU complained that eOselya dominates the mortgage market: implications for banks and the real estate market
25 December 2024 14:02
The state program “eOselya” has completely captured the mortgage lending market, leaving alternative banking products out of the picture. This is stated in the December report of the National Bank of Ukraine on financial stability. What does the NBU offer instead and are Ukrainians ready to take out a mortgage at 20% per annum? And why preferential programs are the only way to support business in the face of war risks
Under the preferential terms of the program, it is difficult for banks to compete with conventional market products, and customers are not interested in more expensive loans outside the program. The report notes:
“Mortgage lending continues only within the framework of eHousing, with loans outside the program being few and far between,” the report said.
Currently, more than 90% of all mortgages in Ukraine are issued by three state-owned banks – Oschadbank, PrivatBank and Ukrgasbank. Some program participants have not yet issued a single loan.
Risks of state monopoly
The NBU warns that the dominance of eHouse discourages customers from alternative offers, and banks from introducing unsubsidized products. At the same time, buyers are avoiding the primary market due to lack of transparency and security risks.
Since the beginning of the year, the share of mortgage transactions has decreased to 4%, which is in line with 2021.
Banks issued half of all mortgages for properties in Kyiv and the region.
NBU proposals to solve the problem
According to the regulator, in the future, state support programs, such as eOselya and Affordable Loans 5-7-9%, should be targeted at borrowers who really need help. In addition, it is necessary to ensure the dominance of market mechanisms in determining rates and to revise the development strategies of the programs.
Economist Oleg Pendzin in an exclusive commentary
According to the expert, government programs work by compensating for the difference between market lending rates (approximately 20% per annum) and preferential rates set by the state (7-9%). This difference – up to 11% – is covered by the state budget.
“Part of the interest rate is compensated from the budget. If the NBU’s refinancing rate were lowered, the budget’s expenditures on preferential programs would be much lower,” Pendzin said.
However, the NBU has a different position: lowering the refinancing rate could lead to an increase in inflation, which is already at 11%. Instead, the refinancing rate was recently raised to 13.5%, which caused the cost of loans to rise from 19% to 21%.
The increase in the refinancing rate has also increased state budget expenditures, causing dissatisfaction with the government. The NBU, for its part, insists on reducing the scope of preferential programs, suggesting a shift to market-based lending mechanisms.
“Tell me, can someone take out a mortgage at 20% per annum? It’s unrealistic,” Oleg Pendzin emphasized.
The economist emphasized that market mortgages are unaffordable for the majority of citizens under such conditions.
Does the NBU have the state’s interests in mind?
According to Pendzin, the NBU’s position is often based on corporate interests, which do not always correspond to the interests of the state. He emphasized that the only way to support the business environment and ensure mortgage affordability is to maintain preferential lending programs.
“Given the military risks and the current economic situation, businesses will not operate without soft loans. And residential mortgages are not a business activity where high profits can be expected,” he emphasized.
Pendzin called for a balanced approach in the NBU’s relations with the government, which would take into account the needs of both the state budget and the economy as a whole.
State of the real estate market: new trends
The data provided by MP Danylo Hetmantsev confirms the changes in the structure of demand:
- The secondary market is coming to life: the number of transactions in the first 11 months of 2024 increased by 14% compared to last year, although this is only 70% of the pre-war level.
- Small apartments are popular: the median area of purchased apartments is 48 square meters, and houses are 71 square meters.
- The primary market is stagnant: the number of transactions does not exceed one-fifth of the pre-war level due to low demand and high risks.
- Construction is slow: in the west of the country, new projects are being launched more actively, while in Kyiv, existing complexes are mostly being completed.
Price dynamics in the secondary market remain sluggish, especially outside Kyiv and the western regions, while prices in the primary market are rising due to demand and more active construction. In general, analysts emphasize that rising incomes and stable price conditions make buying a home attractive, but security risks remain the main obstacle for buyers.
Thus, the government program “eHouse” has had a significant impact on the mortgage lending market, on the one hand, ensuring the availability of housing for citizens, and on the other hand, creating risks of monopolization and restraining the development of market mechanisms. In the current economic situation, which is complicated by military risks, preferential programs remain almost the only way to support business and the housing sector. However, the balance between government subsidies and market instruments needs to be reconsidered. Only a comprehensive approach that takes into account the interests of both citizens and the economy as a whole will help ensure stability and development.
