ANKARA
International credit rating agency Moody’s said that Turkey's monetary policy and several macro-prudential measures serve to partly insulate the market from the risk of a housing bubble.
"The domestic banks' robust mortgage lending practices and Turkey's favorable demographics are the main reasons for Turkish mortgage covered bonds' resilience to most macro risks," Moody’s said in a report published on Friday.
However, Moody’s also said that Turkish covered bonds are susceptible to broader risks, such as “domestic political and geopolitical risks and high debt-to-income ratios relative to those in Western countries.”
"Current mortgage lending regulations and Turkish banks' lending practices have helped sustain mortgage market development and contained the potential for a housing boom," Jose De Leon, a Moody's Senior Vice President and author of the report, said.
In contrast to the euro area where low interest rates suppressed mortgage credit costs and thus boosted housing demand, Turkey has kept interest rates high in an effort to control mortgage demand.
Moody's note that lending is limited to the more solvent borrowers, which lowers the likelihood of losses on cover pool assets if the issuer defaults.
"In Turkey, borrowers are forced to finance their house purchases using equity because mortgages are limited to a 75 percent loan-to-value ratio," De Leon stated.
Moody's also added that all residential mortgage loans in Turkey require compulsory insurance against earthquakes because of the seismic risk affecting parts of the country, and unlike in other countries, foreign-currency lending has been prohibited since 2009.
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