After the coronavirus pandemic brought the economy to a near halt, public banks lowered mortgage interest rates to historically low levels such as 0.64%, enabling many people to buy homes. That 0.64% rate was later adjusted to 0.87%, and with the most recent changes the rate has been raised again to 1.05%.
Low-Interest Mortgage Period Has Ended
The attractive low-interest mortgage options that were available until recently from public banks Ziraat Bankası, Vakıfbank and Halkbank — initially at 0.64% and then at 0.87% — have now been revised to 1.05%.
The public banks’ short-lived campaign for low-rate mortgages, launched to help remediate the economic difficulties of the pandemic period, began at 0.64%. It was later raised to 0.87% because the boost in second-hand home purchases did not sufficiently support the construction sector; for terms up to 180 months some rates were set at 0.99%. With a late-night adjustment by Ziraat Bank on August 12, the rate has now been set at 1.05%.
Increases Expected at Other Banks
After Ziraat Bank raised its mortgage rates, it is expected that other public and private banks will follow suit. Although Vakıfbank and Halkbank have not yet changed their rates, they are widely expected to adjust them to around 1.05% (or possibly higher) in the near future.
Another point is that when public banks reduced their mortgage rates, private banks were pressured to lower their own rates as well. Now that public bank rates are increasing, private banks are also likely to update their figures upward. Because private banks expressed significant discomfort with the initial cuts, the period of very low public bank rates proved difficult to maintain for long.
Up to What Amount Can You Borrow?
According to Ziraat Bank’s update, the 1.05% rate will apply up to 500,000 TL in the provinces of Istanbul, Ankara and Izmir, and up to 300,000 TL in other cities. Prospective homebuyers can borrow up to those amounts under the new terms. Public banks also require a 25% down payment for mortgages, meaning the bank finances up to 75% of the property value while the buyer pays the remaining portion.
Another important point for applicants is that the bank may not approve a loan equal to the full asking price of the property. For example, if the sale price is 200,000 TL but the bank appraiser values the property at 150,000 TL, the buyer must cover the difference out of pocket.
Applicants should also be prepared to document their monthly income. Mortgage installments are structured so monthly payments do not exceed 60% of documented monthly income. As a result, those with low monthly earnings or who cannot prove their income will find it difficult to obtain a mortgage.
Relatedly, interest rates for business (commercial) loans have also risen. The commercial loan rate, which began at 0.87%, has been adjusted to 1.05% as well, meaning buyers of commercial properties will face higher financing costs.