Interview of the Deputy Minister of Finance of Armenia Vardan Aramyan to Mediamax Agency and Banks.am portal

- Armenian government planned to put the program for assisting young families in acquiring dwelling to function in 2010. Has the program been launched and what does it provide for?

- The essence of the program is that the government takes upon itself the part of the young family’s expenses for purchasing dwelling. Initially, we discussed two variants, taken from international practice, to realize the state assistance.

According to the first variant, the state budget was to take 30% of the prepayment for getting a mortgage credit upon itself and subsidize the loan interest rates.

The second variant, which we chose, provides for establishing a Mortgage Fund, which will refinance mortgage loans, provided within the framework of the given program, and will subsidize loan interest rates for 2 percentage points.      

The Fund will provide banks with refinancing for mortgage loans, issued to young families, basing on the annual interest rate of 5.5%, as a result of which interest rates for mortgage loans, issued within the framework of the state program, will be lower than the average market ones approximately for 4 percentage points.

Besides, the Fund will subsidize interest rates for given loans at the volume of 2 percentage points. Thus, if the average monthly mortgage loan interest rate makes 14-16% today, it will make 8-10% for the participants of the state program.       

The Mortgage Fund will become a tool, which the government tries to use to help young couples, for which the social problems are the main obstacle along the path of creating a family, trying to hold them back from the thought of emigrating from Armenia. 

- What are the requirements the young family should meet to participate in the program?

- Single parents under the age of 30 and married couples, whose combined age does not exceed 65 years, can participate in the program. At that, if one of the spouses is under 30, the other one should not be over 35. 

The price of the purchased apartment in Yerevan should not exceed 16mln AMD, and in the regions – 10mln AMD. The minimum loan repayment term makes 10 years, since, given a shorter term for loan repayment, the load of monthly payments will be tougher.

What income should the young family have to participate in the state program? Let me bring an example: if the young family wants to purchase an apartment, costing 16mln AMD, and is ready to pay the 35% prepayment, the sum of the loan in fact makes 10-11mln AMD. If, let’s assume, the loan is issued for 10 years at 10% annual interest rate, the monthly payment size will be within the range of 160 thousand AMD. 

Since, according to the banking practice, no more than 40% of the monthly income of the borrower should be spent for repayment of the loan, consequently, the monthly income of the family should make at least 250-260 thousand AMD.

- When will the Mortgage Fund start functioning?

- The Fund is planned to start functioning in pilot mode early in the II quarter, 2010. The Fund will start functioning with authorized capital stock of 3bln AMD, issued from state means.

The final concept of the Fund is now in the government. It is assumed that the concept will be approved at one of the nearest sessions, and all technical issued will be arranged in the course of the following 1-2 months.

- For how long will the test stage of the program continue?

- The test stage is planned to last for the entire year of 2010, as a result of which the efficiency of the program will be found out and the directions for its deepening and broadening will be defined.

According to the information of our partners, as of today, about 250-300 families meet the above-mentioned requirements. And the 3bln AMD of the Fund’s initial capital is meant for those very families.

If the demand exceeds the offer, and the mechanism proves its efficiency, we will start working over attracting new resources.

- There is a National Mortgage Company functioning in Armenia, which refinances mortgage credits. Why wasn’t there a decision made to include the Mortgage Fund in the refinancing institution, which already functions?

- The decision on establishing a new structure was conditioned by the presence of the social element and subsidizing in it. If the Fund was set up within the Mortgage Company, it would distort the market picture, since the Mortgage Company is guided by exclusively market mechanisms.

By the way, the Central Bank (CB) of Armenia cooperated with the International Finance Corporation (IFC) in forming the Mortgage Fund and the IFC also supported the idea of setting up an individual structure.

- If, following the results of the test stage, there is a decision made to change the terms of crediting to mitigate or to make them tougher, will it have its effect on the first participants of the program?

- I do not think that there will be significant changes, while making a transition to the main stage of the program. If, upon conclusion of the test stage, the new borrowers turn out to be in more favorable conditions, than the first participants of the state program, an unhealthy atmosphere will be formed. This is why we will try to leave the part of the program, which concerns the offer, without changes. Changes may be made concerning improvement of the mechanisms for the Fund’s functioning.

The differentiated approach may be applied only concerning young parents.

The factor of the young couple having a child is not included in the test program. In 2010, this condition will not be discussed, but it will be necessarily taken into account while improving the program.

- In 2009, they provided for also elaborating a concept for increasing affordability of car credits for young families. What does that concept provide for and when will it be implemented?

- The concept of car crediting does not differ as to its essence from the principles of the mortgage crediting program. Here we faced the problem of limitedness of budgetary means, which made us postpone the discussion of car crediting state program will 2011.