Most Russians do not seem to be able to see housing
A truly tectonic shift is brewing in the housing lending market. The Bank of Russia has re-approved allowances for mortgage risk ratios due to the fact that one of these days new requirements for calculating the debt load indicator (LBR) will come into effect. To avoid these surcharges, the borrower's down payment must be at least 20% from June 1 and at least 30% from January 1, 2024. The consequences of this measure of a regulatory and legislative nature are seen as ambiguous.
On the one hand, it will almost certainly reduce the risks of inflating the debt "bubble" in the mortgage sector, and on the other hand, it can cut off a lot of potential borrowers from the market. Those who for years, denying themselves everything, collected money to pay the down payment. Meanwhile, the Central Bank's motives for tightening mortgage requirements are absolutely understandable and justified: something urgently needs to be done about the ongoing overheating of this market and the growing debt burden of the population. According to the regulator, in the fourth quarter of 2022, the share of loans with a low down payment increased to 53%. Banks issue about 44% of loans to people who spend 80% of their income on servicing them. According to CIAN analysts, more than half of all debts of Russians now fall on mortgages: in the first quarter of this year, its share reached 52% (the highest in history), against 49.4% a year earlier. In addition, the volume of "arrears" on mortgages for new buildings increased over this period by 4.3%. In general, in 2022, individuals received housing loans in the amount of 4.8 trillion rubles.
As the head of the Central Bank, Elvira Nabiullina, said back in early March, although the volume of mortgages in Russia is growing rapidly, the standards for issuing are deteriorating due to the spread of risky joint practices between developers and banks. These practices have a lot of "side effects", for example, they lead to an increase in the gap between prices in the primary and secondary housing markets.
“With all the efforts to minimize the damage from the sanctions taken by the Central Bank, it is important to understand that the economy is waiting for new tests, while simple solutions have ended,” says Artem Deev, head of the analytical department at AMarket. – The situation with Russians' mortgage debts is fraught with destabilization of the entire banking sector. If you do nothing, leave everything as it is, in the long term, any scenarios are possible, up to the closure of large banks due to a lack of working capital. I'm not talking about the purely human dramas of borrowers who, in fact, will be left without money.
This is the reason for the Central Bank's course to tighten housing lending conditions. It is clear that from the standpoint of an ordinary man in the street, the measure is unpopular. However, in practice, it somewhat raises the threshold for entering the mortgage - but does not block access to it in principle. In addition, the measure applies only to new buildings - "secondary" always remains an alternative choice. Obviously, Deev argues, next spring there will be a lull in the primary housing market, it may even sink by 5-7%. But the "secondary" is clearly going to grow, it is not excluded, up to 10% in the second half of this year.
“Having promised to fight the mortgage bubble, the Central Bank is now working on it,” says financial analyst Sergei Drozdov. - His goal is absolutely logical and justified - to cool the market, to prevent further growth in the debt burden on individuals, and I support these efforts. But the situation is clearly ambivalent. Imagine: aiming to buy an apartment a few years ago, you with enormous difficulty saved up an amount for a down payment in the amount of, say, 10% of the total cost of the loan. And suddenly you find out that you need exactly two or even three times more money. And this at once crosses out all hopes.
In a global sense, the problem is also that each department, each structure traditionally has its own interests: for the Central Bank, they can radically differ from the preferences of the Ministry of Construction and developers. Apparently, the regulator intends to achieve a reduction in property prices, which soared during the covid period, largely due to the program of preferential mortgages. But it is unlikely that he will succeed, because the developers will resist to the last. At the same time, keeping prices at a high level, they manage to frankly save on the quality of housing. In general, Drozdov concludes, consumer demand for apartments should grow simultaneously with the growth of the entire economy. When it stagnates, people living from paycheck to paycheck are clearly not up to fat.