The Ecuadorian Mortgage Market
The Daily Brief – The Ecuadorian Mortgage Market
In a continued sign of the strengthening Ecuadorian economy and the rise of the middle class, the Social Security Bank of Ecuador (BIESS), the nation’s leading lender, announced that it had exceeded its mortgage loan record, with a figure of $3,000 million (USD), cumulative transactions since July 2008. A total of 93,000 mortgage loans were granted during the stated period. The new record was set on July 31, 2013, when the BIESS placed an additional $13.6 million (USD) in loans on real estate assets, issued to 292 new applicants. At its current pace, the BIESS is averaging $3.8 million (USD) in loans granted daily. . The average interest rate is down to between 7.9% and 8.5%, with terms now going as far out as 25 years to repay. It was only 3 years ago, when a loan for more than 7 years in the Ecuadorian mortgage market was virtually impossible to obtain.
The loan breakdown shows the vast majority of mortgage loans are going to first-time home buyers, newly empowered by the recent success of the economy in Ecuador. BIESS loan data shows 90% of the mortgage loans going to those first-time homebuyers, with the balance largely aimed at vacation home buyers and investors.
While the trend is positive for the economy in Ecuador and illustrates the newly found buying power of the consumer in Ecuador, care must be taken to eliminate the mortgage excesses found in other countries, such as the United States. One can’t forget that Ecuador, until a few scant years ago, was strictly a cash purchase market. An empowered consumer is fantastic, but a debt burdened consumer, especially one with limited liquidity, could easily turn a financial advantage, into a financial fiasco. To date, downpayment requirements remain substantive in Ecuador, with limited opportunity for dramatic abuse in the mortgage industry sector. However, for our astute investor base, it remains a trend at the earliest stage of evolution, which bears watching.
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