In view of the debate raised by the Chamber of Deputies by the “rescue” of UVA mortgages it is important to understand that is what is being discussed.
Starting point
Let's start by putting the current scenario: Argentina does not have a strong internal credit system like other economies. There are some historical processes that explain why we come to this point, but we can reach an easier conclusion when we look at the high inflation rates. In Argentina, those who take a loan seek that their rate be lower than inflation so that the real debt is liqueured, those who pay the money seek that the rate is higher to inflation not to lose purchasing power and in the middle there are banks, financial or lenders who need to get a commission to work.Having actors with such a contracted interest leads to the credit system being what it is today: a non-existent mortgage credit market, cloud apparel credit rates and an oasis of State-subsidised rates in terms of products financed by taxpayers.Among all this are the UVA credits (purchase value unit), a tool created in 2016 to stabilize the credit market (mainly the mortgage) in Argentina. Technically it is a measure equivalent to a thousandth part of the average cost of building 1 m2 of a type villa. It means that it is a unit that is updated with inflation which allows to rate properties in a non-monetary unit. For example: at the time of writing this note (28/03/2023) 1 UVA equals 212.49, if we wanted to take a credit of $10,000 then we will take a credit of 47.061 UVAs of capital. As we are going to pay the quotas, we will reduce the UVAs that take place interest in that capital. As is expected, each UVA will increase its nominal value in weights due to the inflationary process in which we have been submerged for years in this country, but, a priori, is not a real increase in debt, but only represents more weights.What happens in prolonged inflations?
The most serious problem of long inflationary processes such as what is going through Argentina at least a decade ago is the loss of purchasing power. Wages run behind inflation and is where you start to notice the decrease in purchasing power. The price of 1 UVA is updated with the Reference Stabilization Coefficient, whose fundamental data to define the new amount is the Consumer Price Index (IPC) that measures the INDEC.If we know that, in relation to years of high inflation, wages lose in real terms and the mortgage quota they must face follows the inflation data, then we will have to be more and more expensive in proportion to the salary to cope with the monthly credit quota. This is the main argument of the UVA debtors that more than once appeared in the news portals when they feel deceived by a system that by month increases the amount of weights to return.What do the data show?
We are faced with the fact that it is probably the only mortgage credit instrument in the coming years and that, with its defects and virtues, it has proved to be a great success: a report published by the Central Bank1 reveals that only 1.6% of UVA mortgages in effect in September 2022 have irregularities.Of course, there may be some criticism: debtors' complaints about the percentage that used to take the payment of the quota when they only began to pay their debt against the current rate are consistent with the above mentioned of the actual deterioration of wages. Another of the requests is the way to update the value of the UVA, to take the Salary Variation Coefficient, which directly follows the evolution of wages in time, seems to be a way to update the value of quotas so that it does not harm the quality of life of families.It will be a matter of time to see that it solves the lower house in front of a possibility of “rescuing” those who are considered damnified by the situation. The reality is that this is a very useful instrument that comes to bring something of order to the economic and financial chaos that we surf day by day. We must, of course, take more care if we do not want to continue to be the country with the lowest mortgage credit in the region. Parents where the dream of own dwelling is often just that, a dream.
1 https://www.bcra.gob.ar/State Publications/IEF0222. Asp
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