Two weeks for a mortgage: from March 1, the rules for issuing housing loans are becoming stricter

From March 1, 2024, getting a mortgage will become much more difficult for many Russians. And the point is not that interest on housing loans will increase: in theory, they should not, since the Central Bank left the key rate unchanged. But from the first day of spring, the Bank of Russia has been increasing premiums on mortgage risk ratios. This means that getting a loan will become even more difficult than it is now. Those interested have literally two weeks left to get a mortgage according to the old rules. But is it worth the rush and how serious are the expected changes in the housing market after March 1? MK turned to experts for answers to these questions.

Formally, the upcoming change concerns not citizens, but banks. The Central Bank decided to increase risk ratio premiums for mortgage loans for credit institutions starting March 1, 2024. This is done, of course, in the interests of citizens – “to limit the risks of their debt.”

Specifically, premiums on risk ratios will be increased for loans issued to citizens with a high debt burden ratio (PDL). Thus, if the borrower’s debt burden is above 80% and the down payment is 10-15%, the premium will be nine (now – six), with a contribution of 15-20% – eight (now – four), with a contribution of 20-30% – seven ( now – three), with a contribution of 30-50% – six (now two), and with an initial contribution of 50%, the premium to the risk coefficient will be five (now – one).

We will not go into the meaning of these numbers. And without decoding it is clear: many of those who could previously count on the bank’s consent to receive a housing loan will be refused after March 1.

This is not the first step by the Bank of Russia aimed at cooling the overheated mortgage market and reducing the risks of high debt levels among citizens. From October 1, 2023, the regulator has already increased macroprudential premiums on mortgage loans in segments with a low down payment and a high PIT value.

But so far this measure has not worked very well. Banking statistics show that the share of mortgage loans in which borrowers could use unsecured consumer loans for a down payment is gradually growing. Precisely in order to limit the growth of mortgages by involving citizens who are already “up to their ears” in debt, the Central Bank is additionally increasing risk coefficient premiums from March 1.

“The premiums will remain in effect as long as risky practices are widespread in the market,” the regulator said in a commentary. “Accordingly, a significant gap in housing prices in the primary and secondary markets will remain. Our measures are aimed, first of all, at reducing risks in mortgage lending. This will happen due to a decrease in the share of loans issued to over-leveraged borrowers, as well as the share of loans with a low down payment. Raising the surcharges will help encourage banks to stockpile capital in case mortgage losses rise.”

How much will the measure introduced by the Central Bank help cool the mortgage market and how will it affect the housing lending segment, MK asked experts.

Natalya Milchakova, leading analyst at Freedom Finance Global:

“Risk ratio premiums suggest that the more high-leverage borrowers a particular bank has, the greater the reserve for possible loan losses that bank should create in order to minimize the risk of loan defaults. Such allowances, accordingly, are needed not only by individual banks, but by the entire banking sector in order to mitigate the risks of loan non-repayment and avoid a deterioration in the financial condition of the entire sector if the risks are triggered. For several years now, the Central Bank of the Russian Federation has been annually increasing risk premiums, which is associated with the growing debt burden of the population. Despite the fact that in the banking system as a whole such risks do not yet look too high, in fact in Russia the number of borrowers who pay more than half of their monthly income to service debt is rapidly growing.

The Central Bank of the Russian Federation is doing the right thing by increasing risk premiums 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, taking into account the fact that interest rates are very high. Even preferential mortgages are becoming less affordable due to the growth of these premiums and the increase in the down payment on the loan. In our opinion, in order to really reduce the debt burden of the population, it is necessary, on the one hand, to offer people more alternative instruments so that they can earn additional income, and on the other hand, to limit aggressive advertising of loans, which plays a significant role in Russians are learning to live on credit.”

Alexey Krichevsky, financial analyst, real estate market expert:

“In fact, the essence of these changes is as simple as possible – 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. For banks, specifically speaking, these changes mean the following. The higher the borrower’s level of debt, the tougher the conditions will be for him and the more money the bank will have to put aside in reserve. 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.”