Iran Mortgage Rates Cut Further

EghtesadOnline: Iran's highest financial decision-making body has approved further cuts in interest rates to make the most attractive home loans cheaper and more affordable.

News ID: ۷۸۲۴۲۰

28 April 2018

The entity also eased conditions for the renovation of residential units in rural areas, the official news website of the Central Bank of Iran reported.

In its meeting on Tuesday, the Money and Credit Council, headed by CBI Governor Valiollah Seif, approved further cuts to interest rates levied on Housing Savings Account by Bank Maskan, the agent bank of the housing sector.

Based on the ratification, interest rates for HSA loans have now reduced to 8% from the previous 9.5% in non-distressed urban areas and to 6% from the previous 8% in distressed urban areas. This is while normal lending rates in Iran's banking system stand at 18%, according to Financial Tribune.

MCC also approved an increase in the ceiling of individual subsidized loans allocated for the purpose of renovating and reinforcing rural residential units, based on which the ceiling has been raised to 250 million rials ($5,952) from the previous 200 million rials ($4,761).

It made the ratifications with the aim of "revitalizing the housing sector and supporting first-time homebuyers", in addition to renovating rural distressed areas.

The HSA interest rate cuts were widely expected to pass, as the measure had backing at the highest levels. Minister of Roads and Urban Development Abbas Akhoundi–who is one of four ministers boasting a seat on MCC–had previously announced that the government is mulling the cuts and President Hassan Rouhani has thrown his support behind it.

However, despite the fact that the interest rates for HSA scheme were reduced during MCC's latest meeting, some expected better results. The Roads Ministry has repeatedly called for further measures to ease conditions for prospective homebuyers, including increasing the maturity period of loans and increasing their ceiling to 2 billion rials ($47,620).

The Rouhani administration has been constantly improving HSA as the best option for boosting the purchasing power of first-time homebuyers. For instance, the starting interest rate for loans in non-distressed urban areas stood at 14%, which was reduced on several occasions at the urging of Rouhani.

The latest move undercuts ominous predictions by housing experts that home prices are set to increase at a rate exceeding the inflation rate of 9.6% for last year, meaning first-time homebuyers will have a more difficult time.

The predictions had come on the back of the pre-boom phase in the ailing housing sector that has suffered from stagnancy in the past five years.

Mainly established to provide a lending hand to first-time homebuyers and young couples, HSA requires applicants to make a down payment and wait for a year to become eligible for the loans.

Individuals will be eligible for loans valued at 800 million rials ($19,050) in Tehran, 600 million rials ($14,285) in urban areas other than Tehran and 400 million rials ($9,523) in towns with a population of less than 200,000 people. Couples will be able to receive double those amounts.

Effects

The Iran Chamber of Commerce, Industries, Mines and Agriculture on Wednesday published a report analyzing the tangible impact of the interest rate cuts on the general people. As cited in the report, the amount of each installment for a 800-million-rial loan will reduce by about 670,000 rials ($17) a month, considering the new 8% interest rates in non-distressed urban areas. This, in turn, reduces the total amount of interest paid by the end of the 12-year maturity period by about 100 million rials ($2,380).

The new 6% interest rate for distressed urban areas will reduce monthly installments for 800-million-rial loans by about 780,000 rials ($19), which amounts to a total decline of about 120 million rials ($2,857) in total interest paid by the end of the maturity period. Couples will be able to save double those amounts.

In the same meeting, MCC members also received a report from CBI's representatives on the new foreign exchange policies and the way its new online Forex Deals Integrated System, locally known by the acronym Nima, operates.

MCC members explained their methods of improving the system –launched on Monday–to boost transparency and increase the market control capability of CBI.