The Central Bank of Mongolia will slash down mortgage interest rates almost by half to 8 percent from the existing 15 percent in order to support the middle-class of the country. The rates are expected to come into effect by June 17.
Apparently, the new mortgage rates will require a minimum down payment of 10 to 20 percent, depending on the total sum borrowed and will have to be rapid in 20 years. However, certain terms and conditions rule the loan advancement. These interest rates are only valid for apartments smaller than 861 square feet and only qualified applicants will be considered for the loans. The applicant must have a full time job and the monthly expenditure should not exceed 45 percent of the household's income.
Plans of reducing interest rates were contemplated sometime back in April, when the cabinet met to discuss mortgage rates and loan allocation for citizens. According to InfoMongolia.com, in February 2012, the government first rolled out a plan to allow civilians to avail a mortgage loan on apartments for 6 percent per annum. However, during the elections, commercial banks stopped providing the loan service. Now the new government has decided to go forward with the plan but has tweaked the scheme a little.
"The intended purpose is to support the middle class and support the long-term sustainable economic growth by increasing the savings of the middle class. It can vary plus or minus one percent depending on performance of the inflation," Sandagdorj Bold, Chief Economist of Bank of Mongolia said in a telephone interview to Bloomberg.
Bold also said that the 8 percent figure was meant to track the bank's inflation target rate. Back in January 2013, the Central bank of Mongolia cut interest rates for the first time in 2009 by 1 percent. It reduced its policy rate from 13.25 to 12.5 percent stating that the decrease was to "cautiously ease policy" and achieve the 8 percent inflation target.
Growth has been slow in the country. In May, several reports stated that Mongolia's Gross Domestic Product was 9 percent lesser than the GDP growth a year ago. The slowdown was attributed to decline in coal exports. However, the World Bank has predicted that the country's economy may grow by 13 percent in 2013.The new policies will probably help the country's GDP and economy to improve.