The annual interest rate on home loans in Turkey has increased by 10 percentage points in the past five weeks to surpass 34%, a level last seen in 2018. The steep rise has sparked concerns among developers who fear that the housing market may contract by around 30% this year.

More and more loan applications are rejected by lenders, while applicants, whose applications are approved, change their mind when they realise that their monthly payments will be around TRY 80,000 to TRY 100,000 ($2,970 to $3,710) on a TRY 3mn ($111,330) home loan, people from the construction industry told business daily Dunya.

Both construction companies and potential homebuyers have problems accessing loans, they were further reported as saying, adding that if the situation did not improve the housing market in 2023 could contract by nearly one third.

The home loan volume only edged up by 0.2% between June 26 and July 21.

“If you find a house put up for sale for TRY 5mn, you need to have TRY 3mn in your pocket already because you can only take out TRY 1mn to TRY 2mn as a loan from a bank. You will have to pay between TRY 60,000 to TRY 70,000 in monthly instalments on a TRY 2mn home loan,” one developer was quoted as saying.

Banks usually offer only TRY 250,000 in home loans and turn down most loan applications, they added.

Home sales plunged more than 44% y/y in June to around 84,000. Mortgaged home sales collapsed 67% y/y. The share of mortgage-financed home sales in total sales was only 16.1% last month.

Home prices are not coming down because costs are on the rise, said Abbussamet Bahadır, CEO of Bahas Holding. “If inflation declines, then maybe home sales could gather pace.”

The average home price in Istanbul stands at around TRY 7mn to TRY 10mn but it is impossible to take out a TRY 10mn home loan from one of the banks, said Omer Faruk Celik from EYG REIT.

“Given this picture, home supply remains below demand,” he added.

Lenders find applications worth processing only if the applicant is a white-collar employee with a good credit history and has a monthly income of TRY 40,000 or above, said a banker.