The Performance of Mortgage Loans in Albania in Recent Years, Elements of the Process of Mortgage Lending in the Banking System and its Risks

Abstract

Buying a home is one of the most important decisions and sometimes the biggest financial transaction that can be done in life. Mortgage lending is the primary mechanism used in many countries to finance private ownership of residential and commercial property. That in itself is a big deal since the interest that you pay is going to be a percentage of the amount that you borrow, so it is important to make sure that you are getting the best deal possible, since you are going to have it for a long time. At the same time as Richardson cited it’s important that mortgage lenders have an incentive to internalize the deadweight costs associated with defaults and foreclosures. The development and expansion of the Albanian banking market in the recent years has created significant conditions to make a rational choice with the additions of new products and programs. This research will discuss the main steps of the procedure for obtaining a mortgage loan, the advantages and disadvantages of mortgages, the documentation required for obtaining mortgage loans, the credit risks and generally the performance of mortgage lending in Albania in the last 10 years, the prospect of mortgage loans and other main issues based on the appropriate literature review and secondary sources. Also as part of the topic is included a statistical study which analyzes the relationship between the performance of mortgage loans in Albania and other macroeconomic indicators as employment, inflation and the interest rate. The data was accessed from the official database system of INSTAT in the last 7 years and the elaborated results showed an explanation of the econometric model created. The conclusions provided in this case signified a strong relationship between the factors, indicating that the increase of the employment rate and of the deposit interest rate, as the decrease of the interest rate for loans and of the general level of prices are major factors that constrain the mortgage loans in Albania.