Nabiullina announced the Central Bank’s readiness to tighten mortgage issuance if necessary
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The head of the Bank of Russia, Elvira Nabiullina, said that the Central Bank, if necessary, is ready to further tighten macroprudential buffers in order to protect the housing market from risks associated with the growth of mortgage lending. According to Ms. Nabiullina, as of September 1, the annual growth of mortgages in the Russian Federation is 30%.
Macroprudential buffers are premiums to risk ratios that a bank must take into account when issuing a loan. The higher the risk, the greater the reserve of additional capital the bank must have to approve loans, which makes them less profitable for financial institutions.
“We welcome the government’s decision to slightly tighten the requirements for preferential (mortgage) “Kommersant”) programs and increase the requirements for the down payment from 15 to 20%, we will look together with macroprudential allowances, from which we expect much more effectively, how much this will work. …If necessary, we will be ready to further tighten macroprudential buffers,” the head of the Central Bank said during a press conference.
Ms. Nabiullina stated that the growth in the pace of mortgage lending in the Russian Federation is due to preferential programs, their share in mortgages as a whole is increasing. In addition, the growth in mortgages is caused by the involvement of risky groups of clients in the mortgage market, which is especially worrying for the Central Bank, the head of the regulator noted. According to her, in two years, the issuance of mortgage loans to people with a debt burden of more than 80% of income has almost doubled.
The head of the Central Bank noted that the high growth rates of mortgage lending lead, in particular, to the persistence of a price gap in the primary and secondary housing markets. She said the gap is still around 40%. The growth of mortgages leads to an increase in collateral prices in the primary market, explained Ms. Nabiullina.
In September, the government increased the minimum down payment from 15% to 20% under preferential mortgage programs, which together account for more than half of home loan issuance. In July, the Bank of Russia also made a decision from October 1 increase premiums to risk ratios for mortgage loans. Now in Russia there is a rush demand for mortgages. As a result of government and Central Bank measures, demand for new buildings may decrease by 10–20%, but the share of concessional loans in the total volume of loans will prevail in the coming months against the backdrop of high market rates.
More details in the material “No money, no benefits”.
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