Experts talk about a mortgage bubble: home loans will become less affordable

In Russia, the size of the minimum down payment on a mortgage has doubled. From June 1, it is not 10, as before, but 20 percent. Six months later, from January 1, 2024, the entry fee will be even higher – it will rise to 30 percent. Also, from June 1, the Bank of Russia approved new allowances for mortgage risk ratios. The Central Bank explains all these innovations by the risk of a price bubble in the mortgage market. Its volumes are growing rapidly, and at the same time, the number of delinquencies and “bad” debts in the housing lending sector is growing. Who will benefit and who will lose from the new rules in the mortgage market – banks, borrowers, developers? Will these measures help avoid a financial bubble? About this “MK” asked experts.

Dmitry Yanin, Chairman of the Board of the International Confederation of Consumer Societies (ConfOP):

“Mortgage is the cheapest loan product on the market, but at the same time, it is the longest loan and the average amount for it is the highest: more than 3 million rubles. In addition, by issuing such a loan, banks do not risk anything. In case of non-payment, they take away the mortgaged apartment and, if the cost of its sale does not cover the amount of the loan, then the borrower remains indebted to the bank. It is worth noting that almost 95% of all mortgage loans are issued under an annuity scheme, that is, in the first years people practically do not repay the principal debt, paying only interest. This risk-free financial product for lenders has led to the fact that mortgages are being issued even to those borrowers who do not have a sufficient down payment and, perhaps, the income necessary to comfortably service the debt over a long period of time.

Now the Bank of Russia has seen risks in this: but not for people, but primarily for individual banks. Indeed, in the event of a further reduction in the income of the population and a fall in the value of real estate, banks will no longer be able to fully repay the loan if the borrowers are insolvent. Perhaps now the Bank of Russia is acting, anticipating a fall in prices on the real estate market. Let me remind you that many people took out mortgages at the peak of prices and the amounts of their loans were quite large.

I think that these allowances should be introduced now. But it is also necessary to change the legislation: to make sure that after the sale of a mortgage apartment, the borrower no longer owes the bank.

The measure of the Bank of Russia is reasonable. If a comprehensive program to combat debt burden is launched, then both banks and people will benefit from it. It is possible that developers will lose, who previously, under the conditions of state support for the market, had the opportunity to simply rewrite price tags on a monthly basis, increasing the cost of new buildings.

Mark Goykhman, financial analyst, candidate of economic sciences:

“The increase in the down payment, at first glance, contributes to the positive on the mortgage market – reducing the risks of the borrower and the bank. However, on a broader examination of the problem, there are many negative nuances. Mortgages will be less accessible to those who have the ability to service the loan, but do not have the funds for a sufficient down payment. This means a reduction in quite adequate effective demand, the reduction of opportunities for improving housing conditions for many families. This is also a blow to the construction market, since about 75% of new buildings are purchased with a mortgage. In addition, paradoxically, the risks of borrowers may even increase. The fact is that with an increased down payment, many borrowers will prefer to take more “short” and expensive consumer loans, or even microloans. And this amount, instead of a calm long-term service within the framework of a mortgage loan, they must return quickly, with an increased interest burden.”

Natalia Milchakova, Leading Analyst at Freedom Finance Global:

“The new regulatory measures of the Central Bank of the Russian Federation for mortgage lending, which came into force on June 1, will benefit banks, for which the tightening of requirements for the borrower reduces the risk of late payments and loan defaults. But many borrowers will suffer from this innovation. The losers will be, first of all, young families from many Russian regions, where average wages and living standards are generally lower than the Russian average. Also, the tightening of measures against borrowers who cannot afford to make a down payment on a mortgage of 20% of the total loan amount or more may indicate preparations for curtailing state-supported mortgage programs. The construction industry, due to the potential reduction in demand for new housing (due to the fact that mortgages will become inaccessible to an increasing number of Russians), will also not be delighted with the innovation.”

Alexander Kozlov, Commercial Director of Monolith Group of Companies:

“The main reason why the Bank of Russia is “tightening the screws” is the record inflation of the mortgage portfolio (according to a recent estimate by Deputy Prime Minister of the Russian Federation Marat Khusnullin, it has reached 2 trillion rubles) and fears that buyers will not be able to service housing loans en masse – and this could lead to a collapse On the market. The situation was also exacerbated by developers who offered mortgages with a “near-zero” rate, which created risks for the banking industry.

The introduced changes, albeit not immediately, will lead to a decrease in loans issued, and hence to a decrease in sales from developers. Moreover, the situation is now directly opposite to the one that developed during the covid lockdown: if measures were taken to stimulate the market in 2020, now we see a reverse trend. As a result, now we can expect not only a drop in demand, but also a slowdown in the commissioning of new projects. In particular, after increasing the down payment to 30%, we forecast a drop in demand by 30-40% from current levels.

There are no winners in a situation of market stagnation: the pace of construction in the country will slow down, mortgage growth for banks will slow down, and supply will gradually be washed out, which will lead to lower prices for apartments for buyers.”

Vera Stefan, commercial director of the development company Asterus:

“The increase in premiums on risk ratios for mortgage loans depending on the size of the down payment (and, as a result, an increase in either the loan rate or the size of the down payment) is designed to prevent the mortgage bubble from inflating, which, in fact, is what the Central Bank of the Russian Federation is trying to achieve. The average down payment on mortgage loans for a new building is currently about 26%. Under programs of preferential mortgage lending, it is lower – 15%.

As risk ratios rise, banks will be forced to increase interest rates on loans, making them less accessible to potential buyers. How much the rates will rise, the banks will have to decide on their own. In addition, the increase in the size of the down payment will also negatively affect the volume of lending. First, from June 1, the market will lose only a small part of potential buyers – about 10-15%, who will be forced to collect the missing amount in order to receive the required 20% for the down payment. But starting from the new year, the market may not count a much larger share of customers. Of course, surcharges increase in stages, so the market and potential buyers can adapt to new lending conditions over time. But the drop in demand can be significant, up to 30%.

Entry into the transaction will become more difficult, which will weed out a number of buyers of apartments. But with an increase in the down payment, the monthly mortgage payment will noticeably decrease, which is also important for citizens when applying for a loan.”