Home ownership and access to financial services
Whether or not someone owns their house or apartment is closely linked to their access to financial services, since credit is generally needed for purchases of this type.
Access to finance is linked in turn to certain aspects of macroeconomic performance. Higher levels of financial access are usually accompanied by higher per capita income. However, on all indicators of financial development – for example, credit or deposits relative to GDP – Latin America consistently scores badly compared with OECD countries or even other developing countries. Many factors have been put forward to explain this: low confidence in the banking sector, low capacity of households to accumulate savings, low bank penetration, inadequate competition, or inefficiency and high intermediation costs. There is certainly a problem with financial literacy among the large part of the population who lack awareness of the advantages (and costs) of financial services. At the institutional level, deficiencies in the legal framework undermine access, and there is also little competition in the banking sector in most countries.15
By facilitating home ownership, the mortgage market provides a genuine service to middle-sector consumers. It should also represent an attractive opportunity to banks in Latin America since mortgages are linked to the purchase of a non-tradable good. Yet the needs of most households in Latin America are not being served by this market. The white squares in Figure 1.6 show that in Chile, Mexico and Peru on average close to 80% of households do not have mortgage loans from the financial sector.
Figure 1.6. Access to the financial sector by income category (proportion of households with loans for real-estate acquisition or improvement)
In Mexico and Peru, more than half of affluent households use the mortgage market, while less than 5% of disadvantaged households do. In Chile, these differences are lower: 20% of disadvantaged households and 30% of the affluent households use the financial sector for mortgage activities. On average across these three countries, close to 80% of the households without access to mortgages are from the disadvantaged and middle sectors.16
How prevalent, then, is home ownership in Latin America? Consistently more than half of households own their dwelling, ranging from 53% in Colombia to more than 80% in Peru (Figure 1.7). Less than 10% of Latin American households are paying off mortgage loans (indicated by the white square in the figure). Of this 10%, close to half are affluent households.