Turkey: Recent Developments in Mortgage Banking

Last Updated: 30 November 2005
Article by Ebru Ünal

In our Winter 2005 edition, we discussed the issues to be addressed for the mortgage banking system to develop into a fully-fledged market comparable to European standards. During the past few months, the Capital Markets Board (“CMB”) revised the draft law, proposing amendments to various pieces of legislation including the Execution and Bankruptcy Law, Capital Markets Law, Consumer Protection Law, Corporate Tax Law, Income Tax Law, Expenditure Taxes Law, Fees Law, Stamp Tax Law, Banks Act, Financial Leasing Law and the Law on Regulation of Public Financing and Debt Management to address concerns raised by the relevant authorities, including the Prime Ministry and the Ministry of Industry and Commerce (“Revised Draft Law”).

In an effort not only to improve the legal issues hindering the growth of the mortgage market but also to address the authorities’ concerns, the Revised Draft Law includes the following proposals, among others:

  • Scope of Financing

    By amending the definitions “mortgage financing” and “mortgage financing institutions”, the CMB has limited the scope of financing only to buildings with construction utilization licenses (yapı kullanma izni), which may prove to be a very crucial step to fight illicit settlements.

  • Mortgage Backed Securities

    The Revised Draft Law includes changes to provisions related to “mortgage backed securities” (ipotek teminatlı menkul kıymetler), and further details the management principles of mortgage backed securities. Highlights of the management principles include appointment of a separate supervisor (“cover monitor”), who will be responsible for supervision of the management of mortgaged backed securities, creation of mortgage financing funds (konut finansman fonu) which will be able to directly issue mortgage backed securities (rather than fund units) that could be traded, and will not be subject to any third party claims (i.e., being subject to a pledge, an attachment, even in the case of public debts, a preliminary injunction or the bankruptcy estate.

  • Valuation of Real Estate

    Valuation of real estate is of prime importance, particularly with regard to financing institutions since not only the initial value assessment of the real estate in question plays an important part in extension of the credit itself but it also plays a crucial role during the foreclosure process and the validity of public auctions (i.e., the minimum amount the real estate should be sold for) which will be based on this valuation. Under the Revised Draft Law, valuation of real estate must be conducted by the members of the Turkish Real Estate Valuation Experts Association (Türkiye Gayrimenkul Değerleme Uzmanları Meslek Birliği) in order to facilitate the lengthy and sometimes cumbersome mortgage foreclosure procedures and to pave the way for a healthy value assessment of real estate. This Association will also be responsible for collection of relevant data, preparations of statistics, and the announcement thereof both locally and nationwide.

  • Tax Benefits

    Tax benefits that were more generously provided to individuals as well as to the mortgage banking institutions in the previous Draft Law have been restricted, although major tax benefits such as exemption from corporate tax and stamp tax were kept.

  • Treasury Guarantee

    The payback guarantee obligation of the Undersecreteriat of Treasury (in the maximum amount of 400 million YTL) has been further detailed under the Revised Draft Law. The prerequisites to obtaining the Treasury guarantee (e.g., requirements to be satisfied by the mortgage banking institutions, qualities that the assets backing the securities must have, type of securities, amount and term of the guarantee) is proposed to be regulated separately.1 The CMB aims to increase the transparency in obtaining the Treasury Guarantee in order to make mortgage banking more attractive for financing institutions.

  • Consumer Protection

    One of the major amendments of the Revised Draft Law relates to the information to be provided to consumers by mortgage banking institutions prior to execution of any agreements. Accordingly, “Information Notice Prior to Sale” leaflets are to be distributed to consumers, the content and format of which is to be determined by the Ministry of Industry and Commerce.

    Consumers will not be allowed to execute any agreements with mortgage banking institutions prior to the lapse of one whole day following the distribution of these leaflets. Furthermore, the provisions of the agreement executed with consumers may not be amended within the term of the agreement in a manner that would create disadvantages to consumers.

    Nevertheless, this is not to say that there are no revisions in favor of the mortgage banking institutions. As a striking example, the conditions precedent to application of any “acceleration clause” has been eased and the condition that the mortgage banking institution should have performed all of its duties and obligations under the agreement in full prior to requesting the remaining payments from the consumers has been abolished. In this respect, upon default of the consumer, the acceleration clause in the agreement, if any, may only be applied (i) upon a five-day event of default notification to be sent to the consumer by registered mail; (ii) only if the consumer defaults twice consecutively; and (iii) after a one-month period to be granted by the mortgage banking institution to the consumer.

    In financial leasing transactions, upon expiration of the one-month period, if the mortgage banking institution terminates the financial lease agreement, the immovable that forms the subject matter of the agreement has to be put to sale immediately and a valuation of the property has to be conducted. The Revised Draft Law requires the valuation to be notified to the consumers and the sale to be realized by the mortgage banking institution, which is obliged to act as a prudent merchant. As an important note, consumers are not included in the valuation process and there are no obligations brought upon the mortgage banking institutions with respect to the sale of the real estate.

    One of the most discussed innovative approaches under the Revised Draft Law is related to the “types of interests” that may be applied in a financing transaction by the mortgage banking institution. The revisions allow a fixed interest and a floating interest to be applied as well as the application of both types of interest in a transaction (which has not been further detailed under the Revised Draft Law). Further protection is envisaged on behalf of the consumers, particularly for cases where they contract for floating interests, i.e., mandatory discussions of floating interest and any consequences attached to that prior to the execution of the contracts or regulating the interest ceiling to be applied in cases as such.

    Pre-payment” with a “pre-payment fee” not exceeding 2% of the pre-paid portion of the loan, and a discount in the interest of the loan, the terms of which will be regulated by the Council of Ministers, are still allowed under the Revised Draft Law.

    The liability of credit institutions has also been regulated in more detail in the Revised Draft Law. With regard to defective goods (i.e., real estate), the lenders (i.e., the mortgage banking institutions) will be liable for the defects jointly with the manufacturer/producer, seller, distributor, agency and the importer whereby their liability amount will be limited to the credit they had extended.

The Ministry of Industry and Commerce, in particular the General Directorate for Protection of Consumers and Competition, remains unsatisfied with the Revised Draft Law, arguing that the protection provided for consumers is limited. The Ministry opposes the floating interest option in the agreements, since it could prove to be disadvantageous for the consumer.

Whilst the Ministry and other relevant authorities intend to further revise and work on the Draft Law, financial impediments for the development of the system in an emerging market like Turkey has considerably improved, the interest rates for real estate financing have dropped to 1.30-1.20% per month with maximum 20-year terms, real estate prices have skyrocketed, foreign investors are anxious to incorporate mortgage financing institutions, and it is high time to let the players into the game.


1 It was initially proposed that the Council of Ministers be authorized to determine where and when to grant such guarantee.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions