The Ministry of Finance expects a reduction in the share of preferential mortgage programs in housing lending

The Ministry of Finance believes that the share of preferential mortgage programs in the volume of mortgage issuances should be reduced to 20–25%, while now in the primary market it reaches 90%. Methods and timing for reaching this level are currently being discussed. Bankers do not argue that the market needs to be balanced, but they call for caution. According to experts, “getting rid of addiction” too quickly will lead to a fall in mortgage issuance and housing prices, creating problems for developers, banks and their already loaned clients, whose collateral will become worthless.

“It is necessary to reduce the overall impact of preferential programs on the mortgage market, to reduce the share of preferential mortgages in the market to 20–25%,” the Ministry of Finance reported on March 4. At the end of 2023, the share of preferential programs in the total volume of mortgage loans in the primary market reached 90%, the ministry specified. “Specific targets and specific parameters will still be discussed with interested market participants. But it is important for us to ensure the support of citizens, and not developers and banks,” explained Minister Anton Siluanov. “It is important to prevent further distortions in the mortgage market. To do this, we will concentrate our efforts specifically on the targeted and social orientation of support measures.” According to the Central Bank, in the total volume of mortgage issues at the end of 2023, the share of preferential programs amounted to 67% (RUB 4.8 trillion).

A working group is being formed at the Ministry of Finance site to revise the terms of preferential mortgage programs and their extension. Financial regulators have repeatedly made statements about the need to curtail preferential mortgage programs or reduce them. However, the authorities are not yet ready to take such an unpopular step: on February 29, Russian President Vladimir Putin, in his message to the Federal Assembly, proposed extending the “Family Mortgage” state program until 2030 while maintaining the basic parameters. According to the Ministry of Construction, if extended, the program will be used by 300–350 thousand families per year (currently, since 2018 – more than 1 million families).

Bankers and experts do not argue that it is necessary to reduce benefits, but they call for this to be done gradually. “Preferential mortgages have become an effective measure to support the population and the construction industry during the most turbulent period, however, it is obvious that as the economy stabilizes, the market should move on to its natural development,” VTB notes. “We believe that changes in the market should be smooth for everyone participants.”

According to Irina Nosova, senior director of the ACRA group of financial institution ratings, reducing the share of preferential mortgages in issues for new buildings to 20–25% will lead to a “drawdown in demand and, as a result, prices.” “This will have a negative impact both on developers who have a significant number of unsold apartments, and on banks whose collateral is property sold with a mortgage and at higher prices, as well as for citizens who have recently become borrowers or investors,” she explains . The market for new buildings in 2020 “was put on hold, getting rid of addiction will be difficult, and if abrupt, then also painful,” notes Ms. Nosova.

“While rates on market mortgages remain high (about 17%), preferential programs continue to occupy a significant share,” believes Dmitry Gritskevich, manager for analysis of banking and financial markets at PSB. “In 2024, the share of preferential mortgage programs will most likely not fall below 50 –60%. But even such a decrease will be accompanied by a reduction in issuances by approximately 25–30%.”

“It is obvious that achieving the stated goal is impossible in conditions when rates on market mortgages are more than twice as high as rates on preferential programs,” agrees Yegor Lopatin, director of the group of financial institution ratings of the NKR agency. “The feasibility of the indicator of 20–25% of the total volume of issuances depends on how long it is planned to reach this level, which has not yet been announced,” says Managing Director of Expert RA Yuri Belikov. According to PSB estimates, reducing the share of preferential programs to 25% is possible if market mortgage rates return to the level of 8–8.5% while the key rate is reduced to 6.5–7.5%, which is realistic no earlier than the end of 2025.

Ksenia Dementieva