Column by Ksenia Dementieva about how justified are the fears of a sharp decline in the mortgage market

The head of the Mortgage Lending Department at VTB, Sergei Babin, today touched upon a painful topic for the market – mortgages. Back in September, the government decided to increase the down payment on state-subsidized loans to 20% of the loan amount. And loans under preferential programs account for more than half of the mortgage. According to market programs, the situation is even worse – the Central Bank introduced macroprudential limits, which are generally aimed at limiting the debt burden of citizens. According to Sergei Babin, already now, due to restrictions, it is extremely unprofitable for banks to issue mortgages with a low down payment to clients whose debt burden exceeds 60–80%. “Some large banks are completely exiting some lending segments, raising initial fees, for example, above 30%,” he noted. VTB itself is considering increasing the down payment for such programs to at least 15%.

The rise in the key rate does not add optimism to bankers. According to market programs, they were at a comparable level even before the Central Bank increase, and now, obviously, they will become higher. “We wanted to cool the market, it seems to me that we are freezing it,” concluded Mr. Babin. “The volume of the mortgage market is from 7.2 trillion rubles. in 2023 it will shrink to 5–5.5 trillion rubles. in 2024.”

However, his opinion is not shared by the Central Bank. “In September, our mortgages grew by 4.2% in just one month,” noted the head of the Central Bank, Elvira Nabiullina, on the day the key rate was raised to 15%. “Such a pace can no longer be called simply a sign of overheating of the mortgage market.” According to the regulator, in September 2023, mortgage issuances were at record highs for the second month in a row. The debt on housing mortgage loans (HML) as of October 1 amounted to 16.9 trillion rubles, having increased year-on-year by almost a third.

Therefore, the Central Bank does not intend to stop. “We have sent a proposal to the government that it is still necessary to raise the requirements for the down payment on preferential mortgages. But this is the government’s decision,” Elvira Nabiullina said the other day.

Such radicalism of the Central Bank cannot but worry bankers; state programs for them against the backdrop of an increase in the key rate are very profitable.

However, it is the preferential mortgage that can create a big problem over time, including for the bankers themselves. Indeed, now, according to the same Central Bank, the gap in real estate prices on the primary and secondary markets has reached 42%. As a result, apartments purchased with a mortgage, if events develop unfavorably for the borrower, may soon become not very liquid collateral for banks.