The Central Bank is tightening the screws on mortgages: getting a loan has become more difficult since March 1

From March 1, the Central Bank significantly tightened the requirements for mortgage loans to Russians. The regulator’s goal is to reduce the debt burden of borrowers, primarily those who use the lion’s share (80% or more) of their monthly income to pay off debt. From now on, in order to get a housing loan, Russians will have to save large sums for a down payment and reduce their debt burden. But this will not necessarily help: according to experts, the rate of mortgage refusals could reach 15-20% by the end of the year.

The measure introduced by the Bank of Russia specifically means that risk ratio premiums will be increased for mortgage loans issued to borrowers with a high debt burden. We are talking about the ratio of payments on all loans and borrowings of the client to his monthly income – this is how the maximum debt load (MDL) is determined.

As the Central Bank of the Russian Federation hopes, increasing premiums for financial institutions will contribute to improved lending standards and a more balanced rate of mortgage growth. In principle, back in October last year, the Bank of Russia significantly increased macroprudential premiums on mortgage loans in segments with a low down payment and a high PIT value. But so far this has not done much to cool the market situation. As banking statistics show, over the past two years, the share of loans provided to borrowers with a personal income tax of more than 80% has almost doubled and amounted to 47% in the third quarter of 2023. Loans for the purchase of housing with a low (up to 20%) down payment reached half of all mortgage loans.

From March 1, the risk coefficient for loans for such borrowers increases even in cases where the down payment is high. Thus, the risk coefficient for loans under a shared construction agreement with an initial payment of 20-30%, but with a personal income tax of more than 80%, increases from 3 to 7.

As banking experts explain, if a bank decides to issue a mortgage to such a borrower, it will be forced to do so at a high rate – to compensate for its costs and cover possible risks.

The Central Bank of the Russian Federation believes that increased requirements for the down payment on a mortgage are important to ensure the quality of the loan: they reflect the borrower’s ability to accumulate funds and service the loan. Therefore, it is important that the down payment is formed from the borrower’s own funds, and not from new loans. However, there is now a gradual increase in the share of home loans where borrowers could use unsecured personal loans to finance a down payment. This situation, according to the regulator, creates risks of excessive debt burden on the population and is fraught with a decrease in the quality of the loan portfolio for banks.

At the same time, the Central Bank of the Russian Federation promises that if the situation stabilizes and banks return to more conservative standards for housing lending, premiums may be softened in the future.

“By the end of 2023, in the Russian Federation, more than 40% of borrowers pay 50-80% of their income on loans,” explains Ivan Samoilenko, managing partner of B&C Agency. This is an indicator of debt burden: the share of loan payments for almost half of borrowers is half their income or more. And the total number of citizens with loans in the country is more than 40 million. That is, almost 20 million borrowers are people with a high debt burden (50-80% of income). “In order to prevent the growth of overdue debts and an increase in the burden for those with loans, restrictions are being introduced,” says the expert. “In other words, it will be more difficult to get a loan for those who already have loans and payments on them constitute half of their income.”

“Additions to risk ratios suggest that the more borrowers a particular bank has with a high debt burden, the greater the reserve for possible loan losses this bank should create in order to minimize the risk of loan default,” explains Natalya Milchakova, leading analyst at Freedom, for her part. Finance Global. In her opinion, such allowances are needed not only by individual banks, but by the entire banking sector in order to mitigate the risks of non-repayment of loans and avoid a deterioration in the financial condition of the entire sector if the risks are triggered.

Financial analyst Alexey Krichevsky is confident that by introducing such measures, the Central Bank wants to avoid massive loan defaults. “Although, in my opinion, it is extremely unlikely that they can actually be avoided, since the debt burden of borrowers due to rising real estate prices is already prohibitive – in some regions it has long exceeded 100% of household income,” the expert continues.

But Natalya Milchakova believes that the Central Bank of the Russian Federation is doing the right thing by increasing risk premiums in order to avoid problems in the banking system, and, ultimately, an increase in the number of personal bankruptcies of citizens. “However, there is a downside to increasing risk premiums. For all categories of borrowers, including those who are conscientious and do not have a high debt load, loans become even more expensive, given that interest rates are very high,” says the analyst.

What consequences can be expected from the measures taken by the Bank of Russia? “The higher the borrower’s level of debt, the tougher the conditions for obtaining a mortgage will be for him and the more money the bank will have to put aside in reserve,” answers Krichevsky. The same applies to the down payment – the lower it is, the more funds banks will have to withdraw for reserve. “Accordingly, the number of loans issued will fall – it will be too expensive for banks to issue mortgages to borrowers with a large credit load,” the analyst concludes.