The Central Bank warned of the risk of a bubble due to mortgages at low rates
[ad_1]
Mortgage loans with a subsidy from the developer at low rates (up to 0.01% per annum) can carry risks not only for borrowers and banks, but for the entire financial system. Such conclusions were made in the Central Bank (CB) of Russia on the basis of a report for public consultations. The document notes that the widespread use of “preferential mortgages from the developer” distorts the indicators of the state and dynamics of the market. The Central Bank intends to limit the spread of such lending schemes.
A “mortgage bubble” is a situation in the mortgage market, in which rapid growth in mortgage lending leads to an increase in overdue debt, an increase in the share of high-risk borrowers, depreciation of mortgage securities and a subsequent collapse of the mortgage market and the entire real estate market.
From materials report it follows that when applying for a mortgage with reduced monthly payments, the borrower risks losing the opportunity to sell the property at the same price at which it was purchased, due to the overpricing of the acquired property. The Central Bank believes that such circumstances may limit people’s ability to improve their living conditions in the future. In addition, a decrease in interest payments on a loan affects the tax deduction for interest, which reduces the total benefit for the borrower.
In turn, banks may underestimate interest rate risks, hoping that borrowers will repay such loans ahead of schedule, just like a classic mortgage. However, according to the report of the Central Bank, given the extremely low rates, this is unprofitable for borrowers. The burden on the state budget is also growing due to the need for the state to subsidize loans issued under the “preferential mortgage from the developer” for a longer period.
According to the Bank of Russia, the volume of loans issued to low down payment, as well as to highly indebted borrowers, is growing. In the second quarter of 2022, the share of loans with an initial payment from 10% to 20% increased by 40% (+5.5 p.p. compared to the first quarter). It is noted that in the primary market the share of such loans reached a maximum of 58%.
In September, the Central Bank accepted the decision to tighten the conditions for issuing mortgages with a low down payment from December 1, 2022. The Central Bank will set a surcharge of 2.0 to the risk ratio for mortgage loans in rubles. The head of the Bank of Russia, Elvira Nabiullina, called mortgage rates close to zero misleading customers and warned that the regulator intends to take action.
Details – in the publication “Kommersant” “Thunderstorm of zero”.
[ad_2]
Source link
