The Central Bank will dilute the risks – Finance – Kommersant

Russian banks, which are prominent players in the new home market, will have to raise additional capital to continue business at the same pace. The Bank of Russia intends to introduce premiums to risk ratios for housing that is sold under an agreement on participation in shared construction. Such measures may be dictated by the risk of overheating of the mortgage market with inflated housing prices, experts say. They, as experts suggest, can provoke a shift in demand for the secondary market.

The Central Bank is preparing to limit the risky practices of mortgage lending, suggesting an increase in the cost of housing in the primary market.

As follows from the message of the regulator on February 17, banks will be required to apply premiums to risk ratios in relation to loans for housing purchased under an agreement on participation in shared construction, including within a year after its commissioning.

Over the past year, this segment accounted for 31% of mortgage sales (409.9 thousand loans) in terms of quantity, and 43% (2.06 trillion rubles) in terms of value. The Bank of Russia is awaiting feedback from the banking community on this draft instruction by March 10, 2023.

“With the spread of various joint programs of banks and developers, the difference in housing prices in the primary and secondary markets is increasing,” the Central Bank told Kommersant. “At the time the house is put into operation, the price of an apartment under a mortgage agreement may be higher than the price for which it can be sold on the secondary market,” they indicate there. “Therefore, the risk for mortgage loans secured by newly built apartments should be assessed in the same way as for loans granted for the purchase of housing in the primary market, and take into account the difference in prices between the primary and secondary housing markets. The draft instruction, published on February 17, assigns such an obligation to banks, the Bank of Russia indicated. “This measure will contribute to the accumulation of capital reserves by banks on mortgage loans provided for the purchase of housing in the primary market,” the regulator believes.

Increased risk ratios affect capital adequacy, explains Yury Belikov, managing director of the Expert RA rating agency: “The higher the risk ratio, the greater the capital stock required to cover it, that is, the fewer such assets can be kept on the balance sheet without increasing capital.” According to him, the tightening of regulation of risk weights for mortgages “may be associated with the risk of overheating the market with inflated prices for residential real estate and the deterioration in the debt burden of borrowers, which is caused both by the boom in consumer and mortgage lending in recent years, and by a strong lag in the dynamics of real incomes. citizens from inflation and the growth rate of debts.

The use of these allowances may lead to an increase in the average weighted lending rates in the segment of new buildings as a whole, which will eventually cool down demand in the segment, said Yegor Lopatin, deputy director of the group of ratings of financial institutions of the NKR agency.

According to the calculations of the Central Bank, the weighted average rate on mortgages issued under agreements for participation in shared construction by the beginning of 2023 was 3.5%. The level of average rates since May 2022 has been at an extremely low level (below 4% per annum), mainly due to combined schemes with developers. The Central Bank’s report on subsidized mortgages previously explained that seemingly “cheap” programs of “preferential mortgages from the developer” actually underestimate the interest rate, including by increasing the cost of housing (by 20-30%).

At the same time, as Yegor Lopatin expects, borrowers who have accumulated at least 30% of the loan amount for a down payment will “be in the black”: stagnation or even a slight decrease in rates can be expected on such loans. As follows from the draft of the Central Bank, allowances for risk ratios in relation to mortgages issued under state support programs to customers with PTI no more than 60% and a down payment of at least 30% will not be applied. At the same time, according to JSC Dom.RF, as of January 25, 2023, the weighted average down payment on state-supported mortgages was 24.7% for all types of programs (preferential, family, Far Eastern and IT mortgages). “At the same time, innovations can stimulate the growth of mortgages in the secondary market, where last year there was a decrease in the cost of housing,” concludes Mr. Lopatin.

In addition to these measures, the Central Bank is preparing to oblige banks to create increased reserves for mortgages with extremely low rates.

The regulation is expected to come into force on May 30, 2023. And in December 2022, the Central Bank introduced premiums to risk ratios for mortgages in the primary market with a down payment below 10%. Then the Central Bank explained that in the primary housing market, developers began to actively advertise mortgages without a down payment (for example, in installments). “The historical data of banks show that borrowers applying for a loan with a low down payment are characterized by an increased level of credit risk,” the Central Bank explained.

Olga Sherunkova