Few borrowers use housing loan law

The Development Ministry has discovered that borrowers appear very reluctant to make use of the new law allowing them to restructure their mortgages, as the number of applications has not yet exceeded 1,000.

Given that the law was only passed during the summer, the ministry is waiting to see the numbers that will emerge this fall in order to establish the effect the clause will have on the relief of households. The very low number of people to have applied to restructure their loans so far is attributed to the summer vacation period, which makes it harder to assess the real momentum of the new law.

The legislation allows mortgage installments to be reduced to 30 percent of the monthly salary of each borrower for four consecutive years. It also allows borrowers to stop making repayments if they lose their job. However, the strict conditions are expected to make it difficult for a significant number of borrowers to take advantage of the provision. There are many households that would likely want to apply for a favorable arrangement of their mortgages but do not fulfill all the conditions required.

The main condition concerns the obligation of each borrower to present proof that they are up-to-date on their tax payments. However, in a similar program offered by the banks themselves, customers are not required to present any proof of tax payment when arranging to restructure mortgage loans, something which has not helped the new legislation’s popularity. Therefore the original estimates for as many as 150,000 borrowers making the most of the legal provision will now have to be revised to much lower levels.

A major comparative advantage of the new legislation is the four-year period during which the installments are brought down to 30 percent of borrowers’ monthly incomes. This is far more favorable than the banks’ offer, which does not exceed a two-year period and is often for no more than a single year. However, the bureaucratic obstacles that the law raises are likely to hamper its use by the majority of borrowers who could benefit from the debt relief it provides.