The amount of insurance compensation on escrow accounts may increase due to the rise in real estate prices
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Financial authorities are discussing the idea of raising the amount of the insured portion of citizens’ escrow accounts above the current 10 million rubles. due to rising property values. Market participants reacted positively to this initiative, taking into account the fact that there have so far been no cases of bankruptcies of banks holding such accounts, and for escrow with balances above 10 million rubles. now accounts for about 30% of bills. However, real estate market experts fear that this will lead to an increase in escrow loan rates for everyone, and will actually protect only clients in Moscow and St. Petersburg.
Director of the Banking Regulation and Analytics Department of the Central Bank Alexander Danilov said that the regulator and the Deposit Insurance Agency are working on the issue of increasing the maximum amount of insurance compensation for escrow accounts. As Alexander Danilov explained, the limit is 10 million rubles. has become insufficient due to rising housing costs.
“Prices on the primary market are about 40% higher than on the secondary market. This is partly justified, because the quality of housing is higher, it is newer, but this difference has grown significantly, that is, if earlier, several years ago, it was 10–15%, now it is about 40%, the overestimation is somewhere around 20– 25%,” noted Mr. Danilov. He added that while preferential mortgage programs are in effect, housing prices should not be expected to decline.
Escrow accounts containing more than 10 million rubles have recently made up a significant part of the total volume. Thus, according to DOM.RF, more than 30% of apartments sold with a mortgage cost more than 10 million rubles. “Increasing the maximum amount of insurance compensation will help support Russians purchasing more expensive properties,” VTB believes.
Alexander Danilov, Head of the Department of Banking Regulation and Analytics of the Central Bank, 29th of November:
We understand that 10 million rubles is probably not enough… the bar was set several years ago, and it would be necessary to raise it.
Representatives of the real estate market also reacted positively to this initiative. According to Natalya Selivanova, Deputy General Director for Mortgage Programs at Best-Novostroy, the introduction of increased escrow compensation is “a positive initiative, since since the adoption of the law on DDU, coverage limits have not changed, but housing prices have increased very significantly.” Thus, the average budget of a lot in “old” Moscow increased by 3.08% (to 30.1 million rubles) compared to September 2023, and by almost 19% compared to October 2022, she clarified.
“People have apartments for 10 million rubles and 70 million rubles. In a hypothetical bank failure, such buyers would receive the same compensation. There is an element of injustice in this. Of course, the ideal would be full insurance coverage of costs, regardless of the purchase amount,” notes Ms. Selivanova. She emphasizes that since the adoption of the law on escrow accounts there have been no bankruptcies among their holders, that is, “such payments are still a hypothetical scenario.”
At the same time, Legenda Investment Director Alexandra Bolilaya draws attention to the fact that the increase in the insurance coverage limit will mainly affect developers who work in Moscow and St. Petersburg, since this is where the average bill is above 10 million rubles: “But additional costs for insurance will result in higher lending rates using escrow accounts in general because they include insurance fees.”
However, financiers believe that the proposed measure will not have a serious impact on the mortgage lending market.
Senior Director of the ACRA Financial Institutions Ratings Group Irina Nosova is confident that the main factors will remain the level of interest rates, the availability of preferential programs, the amount of the down payment and the dynamics of housing prices.
Managing Director of the Expert RA rating agency, Yuri Belikov, adds that insurance cases among banks allowed to open escrow accounts are “extremely unlikely.” “In this regard, most likely, banks will not increase insurance contribution rates, at least in relation to this factor,” the expert believes. However, he clarifies, if the initiative to differentiate mortgage rates by region is transferred to the insurance coverage limits, uncertainties will arise as to what exactly the geography of the account will be determined by and how reliable it is.
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