International financial institutions, including the US International Development Finance Corporation (DFC), in negotiation to potentially guarantee Ukraine’s state mortgage loans, Chairman of the Ukrainian Financial Housing Company “Ukrfinzhytlo” Ievgen Metsger said.
The final decision will be forthcoming during the next year, which may make the guarantee available before the war ends, he added. The surety could be provided within Ukrfinzhytlo’s “Bridge Financing” financial product– Ukrfinzhytlo converts the mortgage loans Ukrainian banks gave into a financial instrument to attract international financial institute’s (IFI’s) guarantees.
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Such guarantees could decrease the current market interest rate from up to 20% to 10-13% if western banks enter Ukraine’s mortgage market with backing from DFC guarantees. This will also increase volumes of new homes available to Ukrainians would make the housing market more attractive to foreign investors.
Talks about the mortgage guarantees are not only held with the US DFC, the product has also been put forward to the European Bank of Reconstruction and Development (EBRD) and the European Investment Bank (EIB), Ievgen Metsger told Kyiv Post in an interview from his office in Kyiv.
Metsger has been the head of Ukrfinzhytlo since November 2022. Over the last two years, the agency implemented the “yeOselya” mass market state mortgage program for Ukrainians. 13,000 families have already bought new homes using the program that is supported by 12 Ukrainian banks and Ukraine-based capital.
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YeOselya’s loan volumes have already exceeded immediate pre-war mortgage volumes – Ukrfinzhytlo has provided loans of Hr.21 billion total ($512,2 million) this is still somewhat short of the pre-2008 volumes of around Hr.28 billion which was worth around $4 billion at the exchange rates at the time.
Chairman of the State Mortgage Agency Ukrfinzhytlo Ievgen Metsger
“In 2021, Ukraine’s entire banking system provided Hr.8,9 billion ($327,2 million) of mortgage loans. Ukrfinzhytlo provided the same volumes in 2023” Metsger told Kyiv Post. “So far in 2024, we provided Hr.12,5 billion ($304,9 million) of loans, but we forecast to lend Hr.3 billion ($73,2 million) more. We doubled the market thanks to digitalization, automation, and transparency.”
The yeOselya program allows individuals to apply for a mortgage using the Diia system. If clients want to find a home loan, they fill in the application form in the Diia app which automatically transfers their information to the banks within minutes. Clients can then start mortgage negotiations with a bank of their choice after receiving offers from the banks within 24 hours.
YeOselya was originally considered to be as a post-war project, but the Ukrfinzhytlo team saw the prospect to impose it before the end of hostilities caused by Russia's full-scale invasion in Ukraine. “We help people with no home get their first housing. The first home is yours, the state will help,” Metsger explained.
Though the key rate in 2022 skyrocketed to 25% and later decreased to 13%, yeOselya mortgage loans are available with interest rates of between 3% and 7%. Previous state mortgage programs were available for middle-income families, while yeOselya reassured the banks to provide credit to lower-income families and individuals from poorer professions.
Lower interest rates and easier paper handling for banks enabled them to widen the client base. Once popular mostly among middle-class IT specialists, entrepreneurs and law enforcement officials, yeOselya opened the doors for mortgage for teachers, doctors, military personnel with middle-sized incomes, scientists, and internally displaced persons.
“And so far, we have no non-performing loans. Ukrainians will pay for mortgage first; utilities second and only then focus on basic needs. We counted that 80-85% of Ukrainians always pay for utilities, while only 65-68% of Germans pay for them,” Metsger told Kyiv Post.
YeOselya also decreases tax evasion in Ukraine, according to Metsger. Only employees with transparent workplace history could apply for the program, and developers should make transfer of ownership rights transparent.
Meaning Ukraine’s companies will be forced to leave the shadow economy, paying more taxes to Ukraine’s state budget that desperately needs more revenues to finance defense against Russia. “The developers used to pay 8-9% of tax, now they’re paying 18%,” Metsger said.
Despite the full-scale invasion and Russia’s daily air assaults on Ukraine, the volume of loans will have the potencial to reach up to 100,000 if Ukraine has the capital to finance them at a convenient interest rate. Metsger claims mortgages without state support can become private-driven if the interest rates lower to 10-12% organically.
Not only would banks then drive the housing sector. Investments in social housing and rent-to-own models that can also allow thousands of Ukraine’s refugees inside and outside the country find new homes and attract financing for recovery.
“When we enter markets after the war, we would ask for money and the answer we will get: what are your projects? We want to show the projects now,” Metsger said.
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