Mortgages are financing products issued by financial entities, in which the borrower receives a certain amount of money, leaving a real estate as collateral, which will be liquidated by the bank if it does not meet the payment installments pre-established in the contract.
The terminologies “Credit” and “Loan” should not be confused in the case of mortgages, since the first is closed, determining all its conditions in a contract, while the mortgage loan requires a novation to change the number of installments or the fiduciary amount to be financed.
For decades, mortgage loans have been configured in the same way, assuming an economic analogy that had been maintained to date, but the rise of new financial entities, willing to cover spaces where the great economic tycoons did not reach, has almost completely changed your perspective.
Competition in the mortgage market has intensified in recent years. New offers for borrowers appear on the market more frequently than in previous periods. Average market rates for moderate-income clients are 11-13%, but intensifying competition is forcing banks to make more and more efforts to attract clients with incredibly low rates, supported by the certain fine print in the contracts.
The most popular innovation is the new no-down-payment mortgage. What undoubtedly generates attraction and allows the contracting parties to stick to the mortgages without thinking about the installments, as it is something that “they will have to worry about later.”
Given the rise in property prices, banks often risk nothing by canceling or reducing the down payment. In fact, in just two months, an apartment in a good area can increase its price by 10-20%. If the borrower suddenly stops paying the debt, the bank will be able to sell the apartment without any problem. But, the client will not be left behind either, because, after the agreements with the lender, the borrower has the opportunity to keep an amount greater than his financial investments in this apartment. However, most mortgage customers pay on time. Even the default rate for mortgage loans is less than 1%, much less than for other types of bank loans.
Another interesting proposal is the postponement of the payment of the initial fee. Under this modality, the borrower can pay 20% of the cost of the property purchased six months after receiving the loan. This method is suitable for clients who already own real estate, but want to improve their living conditions. This would allow the client to move into a new apartment or house while putting their old residence up for sale.
Another trend is loaned over loans. They borrow from one bank for the early repayment of debt at another credit institution. A kind of double financing using different financial entities.
However, the availability of mortgages leads to negative factors. The main danger is a significant increase in the demand for real estate. After all, there is no adequate increase in supply. However, in the real estate agents’ guild, the proportion of mortgage transactions in the real estate market is considered small – 5-8%. However, other experts point out that it is quite difficult to determine the critical mass of mortgage transactions, which makes the mortgage a catalyst for price growth. There is no such research, and in this sense, one can only speculate. This is most likely to happen when both ordinary buyers and mortgage borrowers can apply for an apartment on equal terms.
The banking race for clients will gradually change the balance of power in the market. Since until recently there were only a handful of leading banks in terms of mortgage loans, since they owned more than 65% of the world market, today, despite the growth in volumes, the participation of the banking elite is gradually decreasing. Small, growing banks that recently entered the market are actively probing the market, offering minimal requirements and restrictions for both borrowers, and purchasing real estate.
The changes have been dramatic, the flexible policy of developing banks played an important role in the collapse of the real estate monopoly.
In addition to the liberalization of credit conditions, the reorganization of forces can be facilitated by the activation of mortgage brokers and bank subsidiaries on foreign soil, who come with large capital and advanced technologies, and this forces domestic credit institutions to change their products and improve their interest rates and payment times.
Despite the above, many financial entities follow the same guidelines for obtaining mortgage loans, even becoming more rigorous in their collections and requirements than the new competition, trusting in the fame of their brands and the good of Your partners.