Loan for Home: Government says new mortgage scheme will help young couples solve housing problems

Loan for Home: Government says new mortgage scheme will help young couples solve housing problems


Apartment: “Apartment For Young Families”

A pilot program to make mortgage loans more affordable for home buying young families will be launched this year, says a deputy sport and youth affairs minister referring to a government-designed home buying scheme that has become a popular topic of Yerevan conversation.

On January 29, the Government of Armenia approved the “Apartment For Young Families” program under which young couples will be entitled to loans at more preferential terms than they would normally get in usual banking mortgage schemes. So far, the initiative has caused enthusiasm and skepticism in equal measure.

“All problems should be revealed in practical terms. 2010 will also be the year of ‘editing’ for the program,” says deputy minister of sport and youth affairs Arsen Karamyan.

Families in which the husband and wife are aged 35 or under and their aggregate age does not exceed 60 as well as a single parent 30 or younger can become beneficiaries of the program. A total of 3 billion drams ($7.9 million) are expected to be allocated for the implementation of the program, besides co-financing from the government will be made available. Resources will be provided by way of mortgage loans, however the state will subsidize these loans to make the scheme more affordable.

Karamyan says that an interest rate of such a mortgage loan has been set at 9 percent per annum, which will comprise all sorts of payments, including banking fee, life and property insurance. The lowest mortgage loan currently available in Armenia is 12-13 percent.

Furthermore, Finance Minister Tigran Davtyan stated that it will be possible to lower the interest rates and issue loans at 8.5-9 percent for a period of 10 years.

“These are pretty good terms compared to those existing on the market, and we estimate we might have as many as 300 beneficiaries at the first stage of the program. I think the launch of this program will largely alleviate the existing [housing] problem,” said Davtyan.

The proposed rates are still much higher than those existing in the West. A 30-year loan in the United States may be acquired for less than 6 percent.

But economic analyst Harutyun Khachatryan says that compared to the interest rates on mortgage loans that currently exist on the Armenian market, this 9 percent interest rate offer seems a reasonable progress. Yet, he thinks it is still not sufficiently low for Armenia.

“A 5-6 percent interest rate is applied in developed countries. The Armenian government is trying to intervene and help as far as it can, but I find it difficult to say what will be the course of this program in a low-income country like Armenia,” says Khachatryan.

And according to the deputy minister of sport and youth affairs, more than 70 percent of families in Armenia have a housing problem today, however only 4-5 percent of them have a possibility to solve this problem by means of a mortgage.

Karamyan also said that the estimated average income of a young family in Armenia today is ‘very close’ to 300,000 drams ($790) a month – a criteria for a young family to become an affordable housing program beneficiary.

Prime Minister Tigran Sargsyan said that the program will serve its first beneficiaries in the first quarter of this year and that additional reserves could be used if the 3-billion-dram financing turns out to be insufficient.

At a press conference on Tuesday deputy minister Karamyan said that the affordability of the program might be improving depending on certain terms, such as the number of children in the family, or if the government subsidizes also some part of the down payment.

“It is also possible that the beneficiary age restriction be ‘softened’,” he added.

The minister added that in order to avoid ‘political speculations’ around the choice of beneficiaries for the program as well as avoid corruption risks and make the process transparent the names of these beneficiaries will be published through the ministry’s website and a hotline will be set up.