Armenia: Subsidised Mortgages Still Too Costly for Most

A programme to help young families in Armenia acquire their first homes has been running for nearly three years, but potential buyers complain that it is expensive and bureaucratic.

Since the scheme was launched in January 2010, about 950 families have used it to buy properties, about half of them in Yerevan.

The programme requires young couples to come up with a deposit of 30 per cent of the purchase price in the capital Yerevan, or ten per cent elsewhere. The government subsidises the mortgage rate by two percentage points in Yerevan and four elsewhere. Despite this, however, the interest rates are high by Armenian standards, at 8.5-9 per cent in the capital and 6.5-7 outside it.

Both the deposit and the mortgage payments are a deterrent to many potential buyers.

“At first, the programme looked like a life-saver, but in practice it was problematic because of the size of the deposit. We had to ask our parents for 12,000 [US] dollars so that we could pay the 30 per cent deposit,” said Liana Yeghiazaryan, a 31-year-old journalist in Yerevan.

Nvard Zakaryan, a 26-year-old working in the tourist industry, said, “A couple on an average salary should steer clear of it, since it creates the misleading impression that if you scrape together the funds, you can take out a mortgage. But if you do, you won’t be able to survive and pay off 250,000 drams [620 dollars] a month.”

Zakaryan said the banks had refused her a mortgage under the programme because she did not earn enough.

“When they found out how much my boyfriend and I earned, three banks refused to give us credit, saying that a [combined monthly] wage of 240,000 drams wasn’t enough for the scheme,” she said. “The programme is supposed to be designed for young people on an average salary, which in Armenia is 120,000 drams. Why didn’t they make it clear this is actually a programme for families on high salaries?”

Deputy Finance Minister Varden Aramyan conceded that the scheme was unaffordable for many young families.

“However, you have to recognise that even in the current conditions, there are a lot of people who want to take part,” he added.

Other officials said they doubted there was a viable alternative.

“The programme isn’t ideal, of course, and it could never have been, since it was always going to be a loan scheme albeit with lower interest rates,” Armen Papyan, head of the youth policy department at the ministry for sport and young people. “That means a young family has to have a stable monthly income, plus disposable income to repay the loan. At the moment, though, this is the best way the government has of tackling the problem.”

Papyan advised couples to demand a written statement from banks that refused them loans, so that they could appeal against the decision.

One difficulty that Zakaryan and others have come up against is that friends, neighbours and extended family members used to be accepted as guarantors of the loan, but the rules have been changed so that only parents, aunts or uncles are allowed.

“This creates more problems – we had wanted my godfather to act as guarantor,” Zakaryan said.

Another problem is that couples are only eligible to join the scheme if their combined age is under 60. the average age of marriage is rising in Armenia, to 28 for men and 25 for women.

Naira Nersisyan, 27, got married last year, and she is still living with her husband’s family.

“Our monthly income is about 400,000 drams [1,000 dollars]. We did our best to get on the scheme since it would have allowed us to buy a flat at a better price than on the open market. But it hasn’t worked out. Our combined age is over the set limit.”

Nersisyan said some bank staff had hinted that they would overlook the age issue in return for a bribe, but she said, “My husband is highly principled, and no matter how hard I tried to persuade him not to rule out that option, he was resolved not to pay a penny in bribes.”

Gayane Asryan is a reporter with eMedia.am in Armenia.