Mortgage loans are continuing to grow at last year’s pace in 2006, despite forecasts of a downturn. Bank sources suggest that new housing loans recorded in January a 30 percent increase from the same month last year, which is similar to the average growth in 2005. This dynamic start is revising northward the banks’ assessments about the course of mortgage credit in 2006. High-level bank officers now believe that this year the rapid growth rates will be maintained, as the property market will barely be affected by the imposition of value-added tax (VAT) and the increase in official property values (known as «objective») that are used for tax purposes. The reason for this trend is that anyone who secured a building permit before December 31, 2005 is not affected by those measures. Given that constructing a house requires at least 12 months, this year’s mortgage growth will only suffer a minimum effect by the new measures. Bank executives estimate that a clearer picture of the consequences of the new measures on the real estate market will emerge after the summer. New building permit data for 2006 are also eagerly anticipated. The 2005 jump The previous year has almost certainly closed with an impressive record for mortgage credit. In November 2005, according to data compiled by the Bank of Greece, mortgage loans issued posted another great annual rise of 31.5 percent, while further acceleration in loans issued was estimated for December. According to the November issue of Alpha Bank’s Economic Bulletin, the volume of private construction activity (based on building permits) recorded a considerable increase calculated at 32.4 percent year-on-year, from a rise of 13.9 percent in November 2004 from the year before. Therefore, in the January to November 2005 period, the annual growth rate came to 12.4 percent against a drop of 4.1 percent in the same period in 2004. Alpha Bank suggests that the remarkable rise in the volume of construction activity according to building permits can be mostly attributed to the citizens’ effort to have their permits issued in time before VAT was imposed. This was strengthened by the exceptionally high rate of growth in mortgage loans. Since the period between the issuing of a building permit and the actual construction work ranges between 12 and 15 months, investments in houses will record high growth rates mainly in 2006. In geographical terms the greatest rise in loans was seen in western Greece (21.2 percent), Attica (20.3 percent), the Peloponnese (19.9 percent), western Macedonia (16.8 percent) and Thessaly (14.4 percent). The Ionian Islands were the only declining region, with 11.7 percent. The day after The first figures for 2006 do not confirm the expectations about a slowdown in the growth rates of housing loans, as January 2006 growth is similar to that 12 months earlier. Banks are not altering their tactics in the competition field, but are preparing for the day after, the period when demand for mortgages abates. The decline in new housing loans will focus interest in loan refinancing, that is the relentless battle of snatching one bank’s good borrowers from the others. The refinancing will dramatically reduce profit margins for mortgage loans, as every bank will have to offer other banks’ clients more attractive terms. The same sources recall developments in the credit card market: At first they had been available with interest rates that were more than just high, yet slowly the market began maturing, rates fell to very competitive levels and now there is a real battle raging among banks for the transfer of balances with particularly favorable terms such as lower interest rates and interest-free periods. Dirty tricks For the time being banks appear very reluctant to apply refinancing properly. In order for a borrower to refinance his loan with another bank there will have to be a transfer of underwriting from the old bank to the new one. The law allows for the transfer of underwriting with a simple registration and without any costs whatsoever beyond lawyer charges. However, many banks are not complying with the law or rather delay too much, making the most of the weaknesses in public administration and bureaucracy. They therefore do not follow the procedures required and delay for many months in forwarding the documents needed so as to make borrowers give up and stay with their bank. It is no exaggeration that borrowers can see no way out from this as banks do not cooperate with them at any level. In the end most borrowers, disappointed by the bureaucratic labyrinth through which banks lead them, either quit trying and continue to pay very high interest rates or, in order to refinance their loans from another bank, they pay for a new underwriting, a process that is also sabotaged. Profit margins and the differences in interest rates are so high that they allow some banks to undertake legal battles and the considerable cost of the underwriting.