The authorities are preparing new restrictions on issuing mortgages: who falls under

Economist Maslennikov: “The risks for banks and borrowers are too high”

The Bank of Russia may be given the right to restrict banks from issuing mortgages from July 1, 2024. We are not talking about all housing loans, but only about those that are secured by collateral in the form of land plots, residential and non-residential premises. Until now, they have been hardly the main source of unpredictability in the mortgage market, generating a lot of risks both for the banks themselves and for clients. A group of deputies led by the Chairman of the State Duma Committee on the Financial Market, Anatoly Aksakov, proposed eliminating this Achilles heel.

The explanatory note to the bill submitted to the lower house outlines its global goal: reducing the debt load of citizens and preventing the accumulation of risks by banks and microfinance organizations “by limiting the possibility of providing risky mortgage loans.” The authors note that the share of mortgages provided to borrowers with a debt burden (debt burden indicator) of more than 80% is continuously growing. The situation is aggravated by the persistent price gap between “primary” and “secondary”: as of October 1, 2023, the cost of housing under construction was 42% higher than the price of finished apartments.

“If the borrower needs to sell the housing under construction purchased with a mortgage on the secondary market, the funds received may not be enough to fulfill the loan obligations. This carries risks for both the borrower and the lender,” the explanatory note says. Parliamentarians propose to give the Bank of Russia the authority to limit the share of loans provided “secured by collateral of buildings, structures, land plots, unfinished construction projects, residential and non-residential premises.”

In general, mortgage loans secured by real estate are among the most profitable deals: they charge a minimum interest rate and you can borrow a large amount. Hence their growing popularity. But at the same time, a borrower who does not fulfill his obligations to the bank risks losing his property. And it doesn’t matter at all that, for example, children or elderly parents are registered in the apartment, that this is the only housing… If there is a burden, all residents will be evicted – forcibly, with bailiffs.

“The initiative is definitely useful, the bill looks balanced,” says Nikita Maslennikov, leading expert at the Center for Political Technologies. – On the one hand, this measure removes many risks from mortgage clients, and on the other hand, from banks. It eliminates a certain kind of loophole that has been present in the mortgage market until now. Namely, the lack of accountability and unpredictability of those mortgage loans that banks issue to citizens secured by real estate. Let me remind you that macroprudential limits (MPL) on unsecured loans have been in effect for more than a year (and are constantly being tightened). There is already an effect: the growth of mortgage lending has slowed down, the risks of a bubble in this market are becoming manageable. But mortgages secured by collateral were still outside the regulatory framework.”

In general, things are not going well with our collateral rights. It happens that banks, without knowing it, accept as collateral an illiquid apartment in a dilapidated building, where there are no necessary communications, no windows, no doors. And what do you want to do with the collateral that is not realizable from the point of view of the bank’s losses? Or an individual, having received a loan, simply does not pay it. This is how credit institutions embark on a thorny path fraught with many problems, Maslennikov argues.

“The proposed measure is seen as a kind of new word, a new stage in the development of the lending system in Russia,” notes Alexander Shneiderman, head of the sales and customer support department at Alfa-Forex. – At the same time, it can become redundant. Mortgage loans (and not only those secured by real estate) require more serious analysis by banks, given the large amounts and long-term agreements. Only a high debt burden and insufficient income are already more than powerful arguments against concluding mortgage transactions.”