The Regulation on Housing Finance Agreements was published in the Official Gazette dated May 28, 2015 (the “Regulation”), right after the Regulation on Consumer Loan Agreements (“Consumer Loan Regulation”) given that the Consumer Loan Regulation does not apply to housing finance agreements (“Agreement”).
The Regulation and the Consumer Loan Regulation is similar in many aspects. However, there are some provisions under the Regulation which differ from the Consumer Loan Regulation.
This article will focus on the provisions of the Regulation differing from the Consumer Loan Regulation. Please refer to our article titled “Recently Published Regulation Sets the Legal Standards for Consumer Loan Agreements” for more detailed information regarding consumer loan agreements.
The Regulation aims to regulate the contractual relationship between the consumers and housing finance organizations.
According to the Capital Markets Law numbered 6362, housing finance organizations are:
i. banks which directly provide loans to the consumers or perform financial leasing activities within the scope of housing finance and,
ii. financial leasing and finance companies who are authorized by the Banking Regulation and Supervision Authority to engage in housing finance activities.
The Regulation provides that housing finance organizations can request a consumer to pay compensation for pre-payment in the event the consumer has paid the entire debt or any amount higher than a single installment set forth under the payment plan prior to the maturity date, provided that a fixed interest rate has been determined under the Agreement. There are of course certain monetary thresholds set forth under the Regulation regarding these compensations to be requested by the housing finance organizations.
A new provision introduced by the Regulation is refinancing of housing finance. In this regard, refinancing shall be in question in case of:
• changes in the interest rate of the loan,
• changes in the maturity date of the loan,
• changes regarding the type of interest mentioned under the Agreement (i.e. fixed or variable interest),
• consolidating multiple Agreements into a single Agreement all of which include collateralization of the same dwelling,
• changes in the currency of the loan.
Housing finance organizations shall obtain the consent of their consumers either in writing or through the permanent data storage unit regarding the amendments to be made in the Agreement within the scope of refinancing.
Prior to obtaining their approvals, housing finance organizations shall provide the consumers with a comparative information either in writing or through the permanent data storage unit including the abovementioned amendments. Such information to be provided to the consumers shall be in at least 12 font and the language used therein shall be clear, simple and readable.
Similar to the Consumer Loan Regulation, the Regulation provides that housing finance organizations may exercise their right to request payment of the entire debt amount if the consumer is in default of payment of the installments under the payment plan subject to the conditions set forth thereunder. Moreover, similar to the lenders of consumer loans, housing finance organizations shall issue a maturity warning to the consumer by providing 30 days to the consumer to remedy the situation.
The difference regarding default of payment of the consumers pursuant to the Regulation is that housing finance organizations are obliged to sell the dwelling immediately on termination of the Agreement due to the consumer failing to remedy the situation within abovementioned 30 days period. In connection with this, the consumer or the third party who is in possession of the dwelling shall be obliged to vacate the dwelling following the sale.
Another difference between consumer loans and housing finance is the provisions regarding interest rates. In this respect, according to the Consumer Loan Regulation, consumer loan agreements cannot include a variable interest rate whereas under the Regulation they can. However, in case of any change in the variable interest rate under the Agreement, such change along with a new payment plan prepared with respect to the new interest rates shall be submitted to the consumer either in writing or through the permanent data storage unit before such change occurs.
The Regulation also provides that the annual cost rate of the housing finance shall be included under the Agreement. In this respect, housing finance organizations are obliged to provide information regarding the new annual cost rate which may arise by taking into consideration the risks which may stem from a significant increase in borrowing rate of interest. This obligation shall be applicable in case the Agreement includes a variable interest rate.
The Regulation will enter into force on November 22, 2015.