Rate Cut Expectations Rise, Housing Loan Rate Reduction on the Horizon

Expectations in the financial sector that the Central Bank of the Republic of Turkey (TCMB) will lower its policy rate have triggered activity in the mortgage market. Latif Aksoy, Deputy General Manager at Denge Değerleme, said, "If a series of interest rate cuts materializes, campaigns approaching 2 percent in mortgage lending rates could be seen."

The expected cut in the policy rate has opened the door to a more active environment for producers and investors. Latif Aksoy, Deputy General Manager at Denge Değerleme, making statements on developments that could occur in markets, noted that expectations for TCMB policy rate cuts have strengthened before July 2025 and preparations have begun in the mortgage market. Aksoy stated, "The Central Bank's steadfast approach to its inflation target, the message that all instruments will be deployed if necessary, declining inflation data, weighted average funding costs falling below 46 percent, and the decline in the TL reference rate have created an environment where technically an interest rate cut is possible. The easing of geopolitical risks through a lasting ceasefire is also supporting this process." He added, "The Central Bank followed a successful path throughout 2025, capable of effective intervention in market data, using all types of instruments, conveying steady and clear messages to the market, and combining all this stance with the determination to raise and lower the interest rate when necessary. The market's confidence and trust in the Bank, combined with the decline in inflation data, renewed confidence in the successful course."

Mortgage Rates Could Fall to 2 Percent
Speaking to short-term expectations, Aksoy said, "The financial sector, which expects cuts of 300-350 basis points in July, senses that the trigger will be pulled for mortgage rate cuts and has begun preparing accordingly. While mortgage rates were seen at 2.59 percent with the drop at the beginning of the year, they rose to the 3-3.5 percent band with the March increase. Although the rate was held steady at the June meeting, these days some banks have dropped to 2.89 percent levels. If the Central Bank implements a 350 basis point rate cut, it is likely to pull mortgage lending rates initially to the 2.80 percent band. Should a series of possible subsequent interest rate cuts materialize, campaigns approaching 2 percent in mortgage lending rates could be seen."

Monthly Returns Signals Began in Housing Investment
Evaluating the impact of falling mortgage lending rates on prices, Aksoy said, "With the decline in interest rates, it is not desired that housing prices experience a deviation from the target inflation. However, considering that housing inflation, which has remained below inflation for nearly two years, a moderate increase would not pose a risk and in this sense there is an environment that would provide a cautious decline in mortgage lending rates. Housing investment, although not yet providing real returns on an annual basis, has begun to signal in this direction on a monthly basis."

Markets' Confidence and Trust in TCMB Renewed
Drawing attention to year-end inflation expectations falling below 30 percent in the Central Bank's market participant survey, Aksoy said, "Interest rate expectations, which were 49 percent in the previous survey, fell to 46.2 percent. This supports the view that the Bank's steadfast stance found acceptance in the market. Throughout 2025, the Central Bank followed a successful path capable of effective intervention in market data, using all types of instruments, conveying steady and clear messages to the market, and combining all this stance with the determination to lower and raise the interest rate when necessary. When the market's confidence and trust in the Bank combined with the decline in inflation data, confidence in the successful course was renewed."

Campaigns at 1.2 Percent Rate Could Come for First-Time Homebuyers
Saying that the likelihood of campaigns in mortgage credit is increasingly strengthening with interest rate cut expectations reaching 350 basis points in the financial sector, Aksoy said, "For first-time homebuyers, a credit package mentioned as 1.2 percent outside normal credit packages is likely to move the market significantly. The decline in interest rates will strengthen the likelihood of an increase in the share of mortgaged sales within housing sales. While the share of mortgaged sales was at 25-30 percent levels in the period from 2013 until the pandemic, it fell to 6 percent last year. These days it is trending at 15 percent levels as it recovers from the bottom."

Interest Rate Decline Could Erode Housing Stock
Emphasizing that the decline in interest rates will begin to erode housing stock, Aksoy said, "The market activity expectations are expected to accelerate construction work. With construction costs declining to minimum levels over the past year, increased housing production in the activated market is important in balancing potential price increases from record sales. In an environment where annual housing production in Turkey is at 700-800 thousand levels, the continuation of stock depletion is a critical factor for price stability. With changes in family structure in recent years and an increase in single living, demand is growing and the amount of housing needed for shelter needs is increasing. For this reason, an increase in building permits and the activated empty housing stock meeting increased demand is important in achieving supply-demand balance."

Will Prices Rise If Interest Rates Fall?
Continuing his evaluation by saying, "'If interest rates fall, prices will rise' is actually not dependent on a single parameter," Aksoy stated, "If sufficient production and sufficient stock, that is, a supply that meets demand, is created, the decline in credit rates could become a real incentive for housing investors and those with shelter needs without turning into price increases and straining the buyer's budget."

Minimum Wage Increase Could Affect Interest Rate Decline
"While the Central Bank's interest rate path is downward, following the interest rate increase made due to political developments in March, the ground has been created for another and lasting rate cut process. Consecutive cuts in at least three or four meetings stand out as a scenario consistent with the year-end inflation target," said Aksoy, noting that internal dynamics such as minimum wage increases could also affect this process.