The Public Housing Ministry announced Thursday the long-waited establishment of a public service body (BLU) that will provide low-interest home loans to low and middle-income people.

Speaking to reporters following the announcement, Public Housing Minister Suharso Monoarfa said the BLU’s first step would be to manage Rp 2.68 trillion (US$297 million) in government funds.

The establishment of the agency, which was proposed to the Finance Ministry in 2008, received ministerial endorsement early this month.

The fund would be gradually increased so that by the end of 2011 the total amount managed by the agency would be Rp 3.5 trillion.

“The government will allocate about Rp 21 trillion for the agency over the next five years,” he said.

Suharso said the funds would be placed in a number of banks, including state-owned PT Bank Tabungan Negara (BTN), which focuses most of its services on providing mortgage credits. The banks appointed to take part in the program should provide additional funds so that more people would be able to receive the low-cost housing loans.

“It’s a blended financing model,” the minister said.

“Funds from the state budget will be blended with additional funds from banks and other financial institutions so that lending costs might be reduced,” said Suharso.

With the blended financing scheme, the lending rate could be reduced to as low as 8.5 percent per annum as compared to between 10.5 and 11 percent now being charged by banks.

“We may even reduce [rates] by between 7 percent and 8 percent, depending on the customer’s profile,” he said, adding that the lending rate of home loans would depend on the proportion of the funds allocated by the government and bank.

The special mortgage loan facilities will be made available to low-income people with an average income of Rp 2.5 million a month and a middle-income people with an average income of Rp 4.5 million a month.

The minister said that the blended financial model was different from the subsidized financing model previously provided by the government. “In the previous model, borrowers had to pay interest at a commercial rate. As many of them could not afford the repayments, a lot of the loans went unpaid, which in turn discouraged housing developers,” he said.

Meanwhile, BTN president director Iqbal Latanro said his bank was aiming to provide credits for 130,000 low-cost houses this year.

“With the new financing program, the number could be doubled in the coming years,” he said.

For the banking sector, he said, the special funds would enable banks to lower the interest on funds.

“It can cut down the lending rate because part of the fund comes from the government. For lenders, that is a good thing because it provides a fixed lending rate,” he said. (ebf)