Individual offer: mortgages for individual housing construction with escrow accounts will become cheaper in Russia

Russians’ interest in living in a country house, which was initially spurred by the pandemic and then government support measures, continues to grow. Experts associate the new stage in the development of individual housing construction with the amendments prepared by DOM.RF and the Ministry of Construction. Their essence is to extend the escrow account mechanism to individual spot development with the involvement of contractors, when the buyer’s money is kept in the bank until construction is completed. A corresponding pilot program has already been launched. Details are in our material.

High-quality and safe construction

Escrow accounts came to private housing construction in March 2022 – then the mechanism was expanded to complex low-rise development within residential villages. Even earlier, escrow and project financing were made transparent and safe for purchasing apartments in high-rise buildings.

The state-owned company explained that with the entry into force of the new amendments, Russians will be able to build houses on land using trusted contractors without the risk of losing money. And builders will be able to attract corporate lending funds.

“On the one hand, this will allow contractors to scale their business due to the ability to attract corporate financing, on the other hand, it will increase the availability of mortgage lending for citizens due to collateral that is clear to banks in the form of money in an escrow account and will eliminate the need to provide additional guarantees in the form of a guarantee from third parties or pledge of other real estate. We expect that the necessary legislative changes will be adopted during the autumn session of the State Duma,” said Evgeny Kvasenkov, director of housing development at DOM.RF.

According to analysts, today in Russia every tenth house is built using a mortgage, while in the multi-apartment sector the share of mortgages is 70%. “If we talk about the potential of the mortgage market in this segment, it is huge. Today, lending to individual housing construction and finished private houses is becoming a new point of growth in the mortgage market: the segment is growing at an accelerated pace, and its share in the total volume of mortgage issues has increased to 16%. At the same time, lending for the construction of such housing has actually grown from zero to 5% in a year and a half,” Evgeniy Kvasenkov clarified.

A new era in individual residential construction

As part of the pilot, mortgages for those wishing to build a house with escrow became more accessible. Rates may be further reduced under preferential state housing lending programs, the operator of which is DOM.RF, the company’s press service reported.

“…The mechanism meets the needs of all participants: citizens have the opportunity to guarantee the protection of their investments by placing them in special escrow accounts, and contractors have access to uninterrupted construction financing through a bank credit line…” noted the Deputy Chairman of the Board of the Bank DOM.RF Alexey Kosyakov.

The bank provides mortgages for the construction of houses only to companies accredited by the bank. They can be found, for example, on the “Building a House” service. The use of coordinated design solutions optimizes citizens’ costs and speeds up construction. An additional advantage of the new approach to supporting private housing construction is the potential demand for domestic industrial products – house kits. DOM.RF expects that other banks will join in implementing the mechanism.