The Brazilian mortgage market
has become big business, boosted by improved market conditions and
recent legislative changes. Rodrigo Amaral talks to José Pereira
Gonçalves, general superintendent of ABECIP, Brazil’s savings and
loans association, about the strong prospects for future home loan

Brazil’s domestic mortgage market is booming, generating good
opportunities for the country’s growing banking industry, according
to the Associação Brasileira das Entidades de Crédito Imobiliário e
Poupança (ABECIP), the Brazilian Association of Home Loans and
Savings Banks. The non-profit organisation was founded in 1967 to
promote the availability of home loans.

It reported that Brazil’s banks granted home loans totalling
BRL2.39 billion ($1.37 billion) in November 2007, almost 200
percent higher than in November 2006. Mortgage advances amounted to
BRL17.54 billion, up 94 percent year-on-year, with 177,200 new
mortgages approved, up 73 percent compared with the same period in

In an interview with RBI, José Pereira Gonçalves, ABECIP’s
general superintendent, said that the Brazilian credit boom is due
to a combination of favourable factors. “The stars have got in
line. We have observed the recovery of the purchasing power of the
population, and that is a very important variable,” he said.

In particular, the home loans market has accelerated off the back
of the gradual reduction in interest rates – one of the central
bank’s main pillars in its drive to reduce inflation – from a high
of 26 percent in 2003 to 11.25 percent now. More significantly,
according to Gonçalves, the booming mortgage market is in its
infancy. He forecasts that mortgage advances will grow 25 percent a
year until 2010, taking annual mortgage advances to BRL36.4

Boosted by legislative changes

The county’s housing market has been boosted by a number of
legislative changes designed to stimulate demand and increase
consumer protection, helping to restore confidence in an industry
that was hit by some high-profile scandals in the 1990s. Fresh
legislation has also concentrated on simplifying the procedure for
transferring property ownership and the law relating to

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The country’s banks have been quick to tap into the growing home
loans market, developing new products to meet the demands of the
country’s growing middle class.

“Only five years ago, a good commercial bank loan for homebuyers
would finance no more than half the value of the property, with a
repayment period of ten to 12 years. But now banks are starting to
offer 80 percent loans with payments spread over up to 30 years.
Some products offer the option to pay lower interest rates in the
first few years of the loan,” said Gonçalves.

“These improvements and others have enlarged the potential numbers
of customers for home loans. In 2002, you could get a BRL80,000
loan at 12 percent a year to be paid in 120 months. The minimum
income required to be eligible for a loan like that would equal 12
times the minimum wage. Today you can borrow the same amount at 10
percent a year and pay it back in 300 months, and you can apply for
the loan even if you earn less than the equivalent of eight times
the minimum wage,” said Gonçalves.

The banks’ main source of mortgage funds is money deposited in
savings accounts (caderneta de poupança). As a result of
higher incomes and improving economic conditions, Brazilians have
been able to save more, increasing the pool of resources banks are
required to earmark for home loans – banks have to direct at least
65 percent of funds deposited in savings accounts to fund

After registering a drop in deposits in 2005, the Brazilian banking
system posted a major increase in deposits in 2006 and especially
in 2007, with BRL18.35 billion deposited in savings accounts in the
first 11 months of the year. According to Gonçalves, total savings
now exceed BRL177 billion, but total home loans advanced represent
less than BRL48 billion, or 27 percent of total deposits.


Another source of loans

Another source of loans is the Fundo de Garantia do
Tempo de Serviço (FGTS), a fund made of contributions paid by
employers on behalf of their employees. It is managed by Caixa
Econômica Federal, the state-owned bank and long-time principal
provider of housing loans in Brazil.

Now commercial banks are also offering such loans. Banco Itaú, the
second-largest private sector bank, started to offer FGTS-based
products at the end of 2007; rivals such as Banco Real, Santander
and Bradesco are expected to follow suit.

Mortgage default rates have been moving in the right direction, at
a level now below 4 percent, providing another stimulus to banks to
focus on increasing mortgage sales. Higher income levels and
legislative changes have played their part in reducing

Gonçalves said that measures are needed to “reduce the still
annoyingly high amount of red tape involved in the process of
buying a home, to give a new boost to the market. It would help,
too, if the interest rates for savings accounts and the rate
charged on home loans were left to the market, instead of being set
by law,” he added. Current rules mean banks are restricted to
charging between 8 percent and 12 percent a year.

With mortgages becoming increasingly affordable, analysts expect
the country’s banks to play an active role in fighting Brazil’s
chronic housing deficit, estimated at 7.9 million homes.

It has also been estimated, however, that only 3.7 percent of the
families who do not have a home of their own earn more than five
times the minimum wage a month, currently regarded as the minimum
income to be eligible for a mortgage.