Saying goodbye to cheap mortgages: getting a home loan will become more difficult

The mortgage boom in Russia appears to be over. From October 1, the Central Bank introduced macroprudential surcharges for the riskiest housing loans, which are actually prohibitive for a large number of potential borrowers. MK found out who will suffer the most from the innovations and where mortgage rates will go next.

The Bank of Russia sees signs of overheating in the mortgage market: it is growing at a very high rate, and the quality of loans is declining. Its head, Elvira Nabiullina, stated this at the banking forum in Sochi. In her opinion, what is important for Russians is not the availability of mortgages, but the affordability of housing. “We are also concerned about the gap between housing prices on the primary market and the secondary market; unfortunately, it persists,” noted the head of the Central Bank. Earlier, the Bank of Russia drew attention to the increase in the share of borrowers in the Russian Federation who spend more than half of their income on servicing mortgage loans.

According to Frank RG analyst Olga Filippova, in August 2023 an absolute record was recorded for the issuance of mortgage loans – 860 billion rubles, of which 58% were preferential mortgages. “In September, according to preliminary estimates, monthly distributions will exceed 1 trillion rubles. This is another record figure; the mortgage market demonstrated a similar volume of issuances, for example, for the entire 2012,” Filippova noted. — In the context of rising rates under market programs, people took out mortgages, trying to have time to apply for them at the old rates or under preferential government programs, fearing for their affordability in the future. We can say that fear has become the driver of growth.”

To “cool down” the mortgage market, the regulator increased premiums on risk coefficients for housing loans from October 1, 2023. The premiums will increase the most for loans with a low down payment and for borrowers with debt when purchasing real estate under an equity participation agreement. As AC Banki.ru analyst Inna Soldatenkova noted to MK, in fact, starting in October, mortgages will become unavailable or will become significantly more expensive for borrowers with a low down payment (up to 20%) and a high debt burden (more than 80%). For loans for new buildings, the restrictions, according to her, will affect borrowers with a down payment of up to 30% and a debt burden of more than 70%. For loans for finished housing – clients with a down payment of up to 20% and a debt burden of more than 50%.

As noted by Sovcombank chief analyst Natalya Vashchelyuk, maximum premiums will be set for loans on the primary market with an initial payment of less than 10%, but they were not very common in the market before. More significant is likely to be tighter regulation for mortgages with down payments of 15 to 30%. Let us remind you that within the framework of state programs, the initial payment was increased in September from 15 to 20%, so discussion of risk coefficients in this segment is no longer relevant. In the segment with a down payment of 20 to 30%, risk ratios will increase for borrowers with a debt burden above 50%, which can already seriously affect mortgage lending. “Banks will likely seek to attract customers who are not affected by the increase in risk ratios (those with a down payment of more than 30% and a debt load of less than 70%). Buyers will most likely be forced to either postpone the purchase or choose cheaper properties,” Vaschelyuk added.

The new package of restrictions on commercial mortgages coincided with the “slipping” of preferential mortgages. Some government programs, such as rural mortgages, have been suspended. In October, the limits on preferential mortgages will end, although the state program itself ends on July 1, 2024.

As MK learned, at the end of last week the operator of preferential mortgage programs distributed an additional allocated lending limit in the amount of 1.9 trillion rubles among banks. The total limit for “Preferential mortgage” with a rate of up to 8% increased from 4.5 trillion to 5 trillion rubles, for “Family mortgage” with a rate of up to 6% – from 3.1 trillion to 3.4 trillion rubles, for “ Far Eastern mortgage” at 2% – from 450 billion to 1.3 trillion rubles, for IT mortgages (up to 5%) – from 240 billion to 500 billion rubles. The largest players received the most money for issuing preferential residential loans, but new banks also entered the program for the first time.

As Inna Soldatenkova believes, the Government of the Russian Federation, having allocated additional limits for servicing the state program, will refuse its extension after July 1, 2024, moving to targeted state support for the industry. In the event of further tightening of monetary policy and an increase in the key rate, which is likely, the maximum interest rate under this program may be increased.

Note that the tightening of conditions for obtaining a mortgage occurs against the backdrop of rising rates. After the September increase in the Central Bank’s key rate, a number of large players have already increased and continue to increase rates on market mortgages. On average, the increase is up to 1–1.5 percentage points. Accordingly, we can expect the remaining players to increase their bets.

According to Soldatenkova’s forecast, until mid-October an increase in rates of up to 2 percentage points is possible: “As a result, at this level of the key rate and taking into account the Central Bank’s transition to a policy of “dear money”, the average rate on market mortgages for clients “from the open market” may exceed 17–18% per annum.”

Natalya Vashchelyuk expects that at the end of December the Bank of Russia will raise the key rate to 14% and maintain a signal about the possibility of its further increase. “Interest rates on market mortgage programs may increase by another 1–2 percentage points. until the end of the year and approach 16%,” the analyst concluded.

It is obvious that the vast majority of Russians cannot afford such expensive housing loans. Only wealthy people will be able to buy expensive apartments with an expensive commercial mortgage. But for investment purposes today they prefer to take “free” preferential housing loans. Which are actually intended for poor citizens who want to improve their living conditions. Thus, the commercial mortgage segment will experience a sharp slowdown.

Published in the newspaper “Moskovsky Komsomolets” No. 29127 dated October 3, 2023

Newspaper headline:
Goodbye cheap mortgages!