The Benefits of a Home Savings Account for Informal Workers to Access Mortgage Loans in Peru

However, it is quite common that a certain group of people -especially informal- do not have all the documents that allow them to demonstrate their ability to pay. Given this, financial institutions offer them to opt for a mortgage savings account or also called ‘home savings’.

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How does a home savings account help?

Home savings could be defined as a term deposit that will demonstrate the good behavior and saving capacity of the person, and that its correct compliance would allow them to qualify for a mortgage loan.

Walter Leyva, Chairman of the Board of the Municipal Savings and Credit Fundmaintains that the mortgage credits Granted based on the home savings modality, they mitigate the risk of non-payment of the plaintiffs since the credit discipline of the client is promoted, especially in those who are informal and do not have any type of documentation that supports their income.

“When independent workers or small entrepreneurs -some of them informal- want to buy a home and cannot demonstrate their income through a payment slip, what the bank tells them is to save monthly, for at least one year, an amount similar to the fee they would pay with a mortgage loan. With this, they generate a history that later allows financial institutions to evaluate them in better risk conditions. because they have already validated that the client has the appropriate amount available to be able to deal with a long-term loan”Leyva adds.

READ ALSO: 36% of informal borrowers would opt for a formal loan for a next loan.

Regarding non-compliance in any of the monthly home savings payments by clients, the executive affirms that it is considered a risk factor for granting the loan.

Say what “Generally, credit programs of this nature allow limited flexibility, but if there is a recurrence in defaulting on that mortgage savings, this behavior is taken as a factor of greater risk in the evaluation that the financial institution carries out in this regard, por what could increase the rate or deny a possible credit”.

The specialist clarifies that given the characteristics of this type of credit, and taking into account the large amount of demand for mortgage loans from people who are not necessarily formal, there is room for the market for such loans to become more dynamic. In other words, the mortgage savings modality could allow more informal workers to access a living at a social cost, which would boost the market for said credits and with it the entire industry.

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Arturo García, professor of Finance at ESAN, states that both the sale of real estate and mortgage loans have been increasing steadily in the last three years, as have prices.

“The first reason is that In Peru there are 1.8 million families that do not have their own home, so this constitutes a demand that will become effective as these people have more ability to pay or access to credit. And, secondly, inflation has caused the price of homes or apartments to increase”Garcia maintains.

The professor specifies that in the last three years, 28% of the total mortgage loans that have been approved correspond to loans under the Fund MiVivienda. So even though mortgage rates have risen from 5.5% in 2021 to 9.8% today, demand will continue to trend upward.

“Facing the sector informal -merchants or micro-entrepreneurs- who do not have the documentation that banks require for this type of credit, but who do have the money to be able to pay the installments, the figure of mortgage savings is a good option to grow the industry and boost the sector”, says the specialist.

What is the current situation of mortgage loans?

According to the Central Reserve Bank (BCR), the credits (loans) granted to individuals by banks, finance companies, municipal and rural savings banks, and cooperatives rose by 12.1% year-on-year, from S/ 146,240 million in April 2022 to S/ 163,905 million at the end of April of this year.

Well, regarding the composition of the increases, it is interesting to observe that, despite the high benchmark interest rates -which have also had an impact on the increase in mortgage rates- The mortgage item registered an advance of 6.1% compared to April 2022going from S/ 60,724 million on that date to S/ 64,439 at the end of April 2023.

The aforementioned figures show that Peruvian consumers are still demanding mortgage credits either for housing purposes or for rent. This is consistent with what was indicated by the Latin American real estate purchase and rental portal Properati, according to which the real estate sector in Peru showed a favorable performance in 2022 driven, above all, by the demand of millennials -people between 18 to 34 years- who represented 43% of buyers.

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