UDC 336.7:330.3
Amanzhaev D.G., graduate student of "Finance and Credit"
Kiev National Taras Shevchenko University

Mortgages as a tool to stimulate real investment

The article analyzes the impact of the mortgage on the real sector of the economy, the relationship of the mortgage and indicators of socio-economic development.

Keywords: economic development, investments, mortgage lending, the multiplier effect, the real economy, real estate.

Statement of the problem. Mortgage lending is an essential factor in economic and social development. Its role is particularly noticeable for the country during the economic crisis. For the continuous growth of aggregate output, and therefore the aggregate income and aggregate consumption is necessary that some of the savings from gross income channeled through investment in product development. Then it may be a chain reaction of increasing economic performance.

Analysis of research and publications. This paper investigates the influence of the basic principles of mortgage lending for the development of real sector of the economy and socio-economic indicators in general.

Various aspects of the formation of market mortgage lending is reflected in the writings of both foreign and domestic scholars. The institutional basis for the organization of the mortgage market studied in Bazilevich V.D, Pogoreltseva N.P. [1], the multiplicative effect of mortgage lending in the country's economy is revealed in the works J.M. Keynes [2], the modern real estate portfolio management are analyzed by the S. Hudson-Wilson [3].

But in the works of authors not complete analyzed the investment component of mortgage loan in the development of national economy.

The aim of the study. The study aims to analyze the impact of mortgage lending as a means of investment in the real economy.

The basic material research to justify the scientific findings. Development of the mortgage business has a positive impact on the development of the real economy. Mortgage is not only an important mechanism for solving the housing problem but also an important mechanism for improving the investment climate, regulating the money supply, economic and social progress in general.

One of the most significant problems is the problem of "convertibility" of tangible assets to cash and deposit the funds in securities. Particularly important mechanism for such a "conversion" is a mortgage because of the capital, which is included in the concept of "property", and the presence of a unique real estate properties - the inability to move across the border [3, c. 46].

The mechanism of mortgage lending increases the number of housing. This, in turn, stimulates the development of the real economy, as construction materials and designs, construction and road machinery, woodworking and furniture production etc. Commercial mortgage lending makes it possible to modernize the production, which leads to better quality and competitive products - all this leads to an increase in economic potential.

Also, mortgage lending is an effective mechanism to improve the socio-economic development indicators of the country to overcome social instability.

With the help of a mortgage in the country solved the problem by expanding employment jobs in construction and allied areas.

The main objective of long-term mortgage lending - is the creation of an effectively functioning system of ensuring affordable housing for people with middle income countries.

Creating this system allow [a, c. 416]:

- to increase the purchasing power of clients and to make housing affordable for the general population;

- to intensify the housing market;

- engage in a real economic turnover privatized housing;

- bring in housing savings and other off-budgetary funds;

- ensure the development of construction industry;

- to revive the economy as a whole.

The system of long-term mortgage lending should be based on existing international experience in the development of mortgage lending, to be adapted to the national legislative framework to take into account macroeconomic conditions, limited solvency of the population and inflation.

The mechanism of development of mortgage lending could play a positive role for the economic development of any country. It is no accident "New Deal" of Roosevelt began with the development of residential mortgage lending [5]. It was not only U.S. but also in other countries, where economic recovery was accompanied by the development of mortgage lending.

Since the satisfaction of housing needs is a priority for any state, the development of residential real estate segment is of paramount importance for the development of national economy. In developed countries, residential real estate has long been one of the main objects of investment income investor [4].

Residential real estate has a high cost, especially compared to household income. The expansion of financial opportunities for people to purchase housing in many countries is achieved through the successful application of residential mortgage lending. In this case, the role of mortgage lending is to overcome the imbalance between current household income and consumer standards for housing.

So, investment in the property market is an attractive way to invest funds. An investor buying securities collateralized by real estate, reduces the risk of its investment portfolio. S. Hudson-Wilson in her book "Real Estate Portfolio Management," examines mortgage lending as a function of two investment processes [3, p. 18]. The first - a mortgage is an investment tool for borrowers who can buy property before he could do this entirely at their own expense. Second - it is the lender who gets the opportunity to invest in a permanent income for a long time. In accordance with the classical theories of financial investment each subsequent intermediaries that purchase mortgages and securitized mortgage debt also receive stable and predictable earnings. The efficiency and profitability of the mortgage as an investment tool is the effect of financial leverage.

Any property in a market system with a developed economy and housing market formed not only as a stable asset, but as real estate, income.

Development of residential real estate sector creates multiplier effects on the development of the entire national economy. The basis for this approach to the role of the housing sector is the classical theory of J.M. Keynes [2]. According to this theory, stimulating demand for goods and services leads to an expansion of their production and thus helps to increase the national wealth, especially large effect is obtained by stimulating consumer durables goods and investment character goods. That the consumption of these commodities is the involvement of other sectors of the economy and increases the multiplier effect of all the participants of economic relations.

Consider the scheme of the multiplier effect in the housing sector. The increase in residential mortgage loans contributes to the development of the housing sector, which leads the development of adjacent industries. Commissioning of new housing increases the demand for the following industries: construction materials, design and other services, durable goods (furniture, household appliances, more furnishings). The costs of homeowners are income other participants of economic relations, which contributes to the spread of contagion to increase national income [3, p. 65]. This involvement of various sectors of the economy in the production process increases the efficiency of the national economy through a chain reaction, "the revenues - expenses and taxes." Goods and services in the housing and adjacent sectors of the economy characterized by high cost, so their purchase is not without attraction of credit resources. Thus, the multiplier effect of spending and tax increases also the influence of the credit multiplier.

The process of creating a multiplier effect in the housing sector is shown in Fig. A.

Source: Compiled by author

Fig. A. Creating a multiplier effect in the housing sector

One of the main issues discussed in defining the role of housing loans is adjusted for inflation.

The main characteristics of the real estate market are the high cost of its objects, and low elasticity of price proposal - with the change in value of its housing supply in the market is almost unchanged. Inelasticity of supply is due, primarily, the duration of the construction period. Therefore, the housing market the main controlling factor is price. That is why the housing market there is always the danger of "speculative bubbles", i.e. when the current cost of housing is higher than its fair market value. Therefore, it is imperative to state regulation of the housing sector of the economy.

With the economic downturn the state should adopt policies aimed at stimulating demand for housing. With economic recovery, this stimulating effect could lead to overheating when excessive increase in investment in construction will be completed in its unprofitable due to the deterioration of general economic conditions and falling demand as compared with the expected volume.

Therefore, government policy should be as well thought-out, so that if necessary to slow down the destabilizing process in the construction sector. Of particular importance, this issue is in the case of the mass distribution of housing loans, as a fall in economic activity increases unemployment, and incomes are unstable. At the same time in the stage of the economic downturn increases pressure on the housing market. This leads to a drop in its price. All these factors increase the likelihood of default by borrowers and increase in bad loans, which was the main cause of the global financial crisis that began in the U.S. [4].

Of great importance is the mortgage, and to improve the stability and efficiency of the banking system. Secured loans are more secure (compared to the blank) for banks, since the non-repayment loan collateral and the bank sells your money back. Of course, if the mortgage is required for the proper assessment of the property and developed real estate market. Reduce the risk in mortgage lending also helps targeted loans. Real estate transactions are often less risky than current lending operations of commercial banks.

Mortgage banks at the national level are usually combined in the association. Establishment within the Mortgage Bankers Association of the additional reserves to guarantee the deposits placed in the mortgage banks, also strengthens the banking system.

There is another important side effect of mortgage on the stability of the banking system related to the functioning secondary market for loans secured by mortgages. This market facilitates the transfer of capital to more profitable area of the economy (diversification of bank capital), as well as reduces the difference between interest rates in different geographic areas, which contributes to a single cost of capital on a national scale.

Some economists believe that the massive issuance of mortgage loans for housing leads to increased inflation, and thus have a negative impact on the economy as a whole [1, 3]. If the economy which is characterized by insufficient availability of housing, increase the volume of mortgage loans, this will increase the demand for residential property, both the primary and secondary housing markets. Construction companies, receiving additional income, increase the amount of construction. But due to the duration of the period of construction, the necessary proposal for the housing market will be reached only after several years. Mismatch of supply and demand can lead to a significant increase in prices and contribute to inflation.

Despite this negative fact, be aware that housing is a necessary condition for the existence and the primary human need. Due to the high cost of housing compared to income of citizens, a mortgage is an essential element of the economy, allowing people to satisfy the need for housing. Second, the mortgage loan to economic growth in the country. In this connection it is necessary that the state has assumed the role of coordinating body.

The situation when the mass introduction of residential mortgage lending may lead to unnecessary increase in housing prices and inflation can only occur as a result of inadequate government policies. In the short term, the mass introduction of mortgage lending will increase demand for housing. Due to the inelastic supply of housing in the short run, of course, that this situation will lead to an increase in housing prices. The role of government consists in the gradual introduction of mortgage lending, while in the planned expansion of the housing market by supporting the construction of new homes and create an adequate demand. Only in this case, the development of the construction sector have a positive impact on the development of the economy as a whole [1, p. 418].

Conclusions. Thus, the value of the mortgage to the economy is as follows:

- involvement in the form of real estate capital into the economy through the mechanisms of collateral, a secondary market for mortgage securities - a significant factor in economic recovery;

- the real estate market "ties" a significant portion of these funds and thus is an important anti-inflationary factor;

- the money people invested in real estate construction, in fact, included in the infrastructure of the village, city, local construction industry in creating and maintaining jobs, and do not go to the side (for example, do not fund foreign producers through the purchase of imported consumer goods);

- for the work to master the technology of banks lending on the security, especially for mortgages, lets take a step towards a common system in the world to guarantee the repayment of loans.

Thus, the mortgage lending can be considered a type of investment in capital construction.

All of this leads to an objective need for the development of the mortgage. The key to attract the same terms and conditions of credit resources into long-term mortgage loans are the creation of more favorable economic and political environment, developing needed legal and regulatory framework and improving welfare. One of the central issues - standardization of procedures for issuing and servicing of mortgage loans, the rules for assessing the solvency of borrowers, as well as financial instruments to raise funds.

The system of mortgage lending should be based primarily on the efficient use of borrowed funds of private individuals, commercial banks, lenders, investors, and less funding from the state budget, but the state should take the role of the regulator in this process on macroeconomic level.

List of sources

1. Базилевич В. Д., Погорєльцева Н. П. Іпотечний ринок.– К.: Знання, 2008.– 717 с.

2. John Maynard Keynes, The General Theory of Employment, Interest and Money. London: Macmillan, 1936, p. 383

3. Susan Hudson-Wilson. Modern real estate portfolio management. – NY: Frank J. Fabozzi Associates New Hope, Pensylvania, 2000, 239 p.

4. The Global Competitiveness Report: 2010-2011, 2009-2010, 2008-2009, 2007-2008. World Economic Forum [электронный ресурс]. Режим доступа: URL: www.weforum.org

5. Official website of the Ukrainian National Mortgage Association. - [Electronic resource]. - Mode of access: http://www.unia.com.ua

6. National Bank of Ukraine. - [Electronic resource]. - Mode of access: http://www.bank.gov.ua