Archive for February 2nd, 2010

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5 State Banks to give mortgages in Ukraine at 5% PA……..

February 2, 2010

Today at 11:47 | Interfax-Ukraine A beneficial mortgage credits mechanism, which can be used by all Ukrainians, will be launched in Ukraine in 2010, premier and presidential candidate Yulia Tymoshenko told Odesa students.

She said that a mechanism, using which Ukrainians will take mortgage credits without down payments with no more than 5% per annum and for no less than twenty years, will be set up on the basis of five state banks.

Ukrainian families, where at least one family member works, will be able to use the new mechanism, she added.

In what I can only describe as a “strategy” towards creating “middle Ukraine”…..and following on from yesterday’s post…….Yulia Tymoshenko has announced the 5 banks which were taken into State ownership during the financial crisis will give mortgages to every Ukrainian with a job!

OK…..I will be very pleased if the mortgage rates are a mere 5% with no down payments as she claims for any Ukrainian with a job.  In fact I will be delighted not only for the Ukrainian people but because I currently have 2 houses for sale which I have built here.

However, the banks which are not State owned……in other words foreign banks and their subsidiaries here are typically are lending on the following basis:

50% deposite on what you are buying paid up front and with interest rates between 20% – 27% over a time period from 5 to 15 years such is the lack of appetite for further bad and defaulting loans.

What risk assessment has she made before making this very generous statement?  Obviously not the same risk assessment model as the foreign owned banks in Ukraine for certain.

What a marvellous proposition for a Ukrainian to have a minimum 20 year loan at 5%…….regardless of inflation, hyper-inflation, currency fluctuations, unforeseen unemployment for those which are still employed etc etc…….given what is already offered and available to them.  Come hell or highwater…..5%……bloody mavellous!

Of course I would expect all loans to be in UAH and not US$…..despite all property being sold in US$……because property is normally bought cash rather than electronic transfer or cheque.  I can tell you from experience, $400,000 can easily fit into an Adidas shoe box for trainers size 10 UK…..or 44/45 Ukraine.  The equlivilent in Ukrainian UAH will need a bloody dumper truck of course.

Maybe this is where the State banks will make money.  The seller will be forced to accept UAH instead of US$ and then to change the UAH to another currency……like Euro, Sterling or US$ which has some use outside Ukraine…….they will have to pay the commission changing it to that currency. 

Personally I don’t care if I am paid in UAH, US$ or any other currency……I will simply work into the asking price the cost of the commission into whatever currency I want at the time.

Equally the UAH can be printed at will…….or more likely, the mortgages granted through the State owned banks will simply have numbers on their books they cannot cover but nobody will really care as the banking system is so opaque that the State owned banks could run forever more. whilst being more than a little insolvent and continue handing out a currency which is no use outside the borders of Ukraine anyway.

Of course with nothing to pay and a locked in 5% interest rate over a period of time much longer than is normally available to a Ukrainian this will be an extremely popular move and one which will have people kicking the doors in at the banks to take up……even those who already own their own properties and want another or many others, for rental purposes.  Blimey, even I might take it up.

Let me see……I could sell one of my houses to my good lady after she got a mortgage for “X” at 5% from a State controlled bank and then put that money into a locked in high interest rate account with a foreign bank here, which today is at 17% interest per annum on the UAH, 10% on US$ and Euro. 

I could insure the repayments to the bank were met of  course whilst gaining a net of 12% interest on UAH currency or 6% (or so) on the US$ or Euro after repayment plus 5% in UAH……..whilst still owning the house (or my good lady would).

She can then sell it to a cash buyer at a higher price than she bought it from me for and throwing that into another locked high interest account (less what was owed from the first mortgage), now having no monthly repayment to consider, thus making 20% on the US$ or Euro and a massive 34% on the UAH on the profits from both “sales”.  The % on the UAH more than covering the commission to change it into a more universally accepted currency of course.

Not than anyone in Ukraine would be so dishonest as to sell an existing property they own to a family member and maximise the interest rates on saving against borrowing on this mortage to then sell it again doubling what they can make in high interest accounts…..nah, Ukrainian people aren’t like that…….are they?

Still, going back to reality…..as I said yesterday, it seems that “middle Ukraine” will be built on a property debt bubble under this model which the 5 State banks will not actually be able to cover…..should anything go wrong…….but then, when was the last time a property bubble burst?

One also has to consider that this is yet another “centralisation” for what can be all but called a State mortgage…..for the micro-manager which is Ms Tymoshenko…….by the back door.

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