Mortgage did not meet the limits: cheap housing loans are under threat

“We urgently need to compensate the banks for their losses. The bill will amount to trillions of rubles”

The government is going to expand the limits for banks on issuing preferential mortgages, enshrining this in the relevant resolution. The Ministry of Finance reported this. The measure is absolutely forced and inevitable; accordingly, the question of expediency is obviously devoid of any meaning. Additional financing was required for two interrelated reasons – in connection with the increase in the key rate of the Central Bank and the sharp increase in demand for preferential housing state programs. It is difficult to say how much this will cost the authorities, but we are clearly talking about trillions of rubles.

Preferential mortgage limits are the amount of funds that banks can issue to citizens in the form of subsidized housing loans. For the entire duration of the programs, the total limit, distributed among banks, for issuing preferential mortgages for new buildings at 8% was 5 trillion rubles, and for family mortgages at 6% – 3.4 trillion. In August-September, against the backdrop of increased rates on market products (due to the high key), Russians took out loans en masse under government programs, which is why the limits of credit institutions began to be spent at an accelerated pace, and today they are close to exhaustion. This is fraught with tightening the conditions of preferential mortgages, in particular, requirements for indicators of the borrower’s debt load, as well as an increase in rates. Even a temporary suspension of extraditions cannot be ruled out.

Meanwhile, in October, demand began to lose its rush: according to Frank RG, mortgage issuance volumes (775.6 billion rubles) fell by almost 20% compared to the September record (962 billion). Experts explain this by the entry into force of a government decree increasing the down payment for state housing programs to 20%. That is, the market responded to one of the government’s measures to cool it.

“Expanding the limits on preferential mortgage products is an undeniable step,” says Valery Tumin, director of markets for Russia and the CIS at fam Properties. – If this is not done now, if the banks are not compensated for their losses, they simply will not be able to provide cheap loans to citizens. After the regulator raised the key rate to 15%, average market mortgage rates reached 16-18%, while preferential mortgages are issued at 8% (for new buildings). Statistics show that issue volumes are already declining. Among other things, this could hit the construction industry, which has been actively growing in recent years precisely due to preferential government programs.”

In turn, Tumin argues, a huge number of related industries are associated with the construction sector – the production of building and finishing materials, plumbing, furniture, logistics. This is a significant part of the entire economy that needs to be supported. Including due to increased limits for banks.

“Whether the measure is justified or not, in this case the question cannot be raised that way,” says Konstantin Aprelev, vice-president of the Russian Guild of Realtors. – We are talking about risks (in the form of lack of funding) for obligations previously assumed by the state. Banks find themselves in a position where, with a certain degree of probability, they will have to refuse to provide preferential mortgage programs to people who meet all the criteria for receiving such loans. It is clear that the initial expectations for budget expenditures were different, but the reality, in the context of a rising key rate, turned out to be somewhat different.”

On the one hand, in August-September the volume of issued preferential housing loans increased sharply. On the other hand, it is necessary to compensate banks for the increased difference between two types of rates – market and preferential programs. It is difficult to say now how much these actions will ultimately cost the state, but, apparently, Aprelev argues, the bill will amount to trillions of rubles.

Meanwhile, the volume of mortgage loans of all types, on which Russians were in arrears, grew by 7% in October (in annual terms) and reached a record level of 75.6 billion rubles. This is due to a fairly serious increase in the average amount of debt per borrower – from 2.3 million rubles in 2022 to 2.6 million rubles in 2023. At the same time, it is too early to talk about the risks of a bubble in the mortgage market: over the past two years, the share of overdue loans did not exceed 1% of the volume of all loans issued for the purchase of housing.