According to data from the Brazilian Central Bank (BC), the amount of credit directed to housing finance in the country has surpassed R$ 100 billion and grew 3.5% in May alone and 51.1% in the past 12 months. The specialists have different opinion when analyzing this scenario: some believe in a bubble in the long run, others do not.
Another ingredient to spice up the discussion is in regards to the banks. Real estate financing is the type of credit that has shown the fastest growth in every financial institution. One example is Bradesco bank, that grew 180% when comparing the first quarter of 2010 against 2009. The bank estimates that it will break the barrier of R$ 7 billion in December. In a competing bank Itau Unibanco, the real estate portfolio showed an increase of 41.7% when comparing the first quarter of both years. The institution projects to reach R$ 10 billion at the end of 2010.
One reason for banks to open their coffers to finance real estate is the loan-to-value (LTV) ratio. The LTV measures the ratio of outstanding loan against the assessed value of the property financed. In most of the cases the ratio is around 60%. In 2005, Bradesco provided R$ 700 million in credit. In one month this year, it already put R$ 800 million in the market. Brazil is experiencing a unique moment in the history of mortgages. According to Claudio Borges, from Bradesco, the reasons are more flexible terms, lower interest rates and high employment and income.
The guarantee of the bank in Brazil is called the deed of trust, a type of agreement between the lender and the bank, in which the ownership of the property is given to the bank in case of default. Prior to that, the default was around 10%, and today it is 1.5%. The risk is lower. Brazilian families are using real estate financing more and more to buy their homes. A few years ago, they would rather save most of the resources to buy a home. Now, the tendency is to fund around 60% in value.