Why is Russia expecting a decline in the availability of credit?

Predictions by “key”

An increase in the rate by at least 1 percentage point to 14% looks very likely, since there remains a need to contain inflationary pressure, which has intensified this fall against the backdrop of growing consumer lending and the devaluation of the ruble, says Alexander Proklov, senior managing director of the NKR rating agency.

According to him, the purpose of raising the rate and generally tightening regulatory requirements is to cool the consumer lending market, which in recent months has set some kind of records, and limit the associated credit risks. “We expect a reduction in the volume of issuances and tightening of lending conditions,” the expert predicts.

Other experts are also unanimous in the opinion that the Bank of Russia is more likely to raise the key rate on Friday, October 27. “In my opinion, the rate can be increased to 14%, in this I agree with most expert assessments. Moreover, by the end of the year we can see 15%. Of course, this is another attempt to reduce the rate of inflation – loans will become even more expensive, and therefore less accessible. In these conditions, the availability of loans for the population can be partially ensured through government-subsidized preferential mortgage and car loan programs,” banking expert-analyst Vasily Kutyin shared his opinion.

Like most experts on the market, Banki.ru analysts also expect the key rate to rise to 1 percentage point. In this case, banks will be forced to further tighten the conditions for issuing loans and will continue to reduce the level of approvals in order to create high-quality loan portfolios.

There are even higher expectations, for example from developers. Gleb Shurpik, vice-president of the economics and finance block of GloraX, said that the company expects that with a high degree of probability the Central Bank will again raise the key rate following the meeting, and options for the development of events may be different – the rate may be raised either by 1 or 2 percentage points point.

“Since loan rates are already at barrier levels, we are inclined to believe that a more likely strategy for banks will be to expand rate ranges while simultaneously increasing both the upper and lower limits. First of all, this applies to borrowers with a high debt load who take out unsecured consumer loans. An alternative scenario to raising rates could be that banks expand the number of additional services and increase their cost, which can affect the FCC (full cost of credit – ed.) of the loan, the restrictions on which for banks were canceled until the end of this year,” says an analyst at AC Banks. ru Inna Soldatenkova.

According to her, the most significant increase in rates should be expected for unsecured consumer loans – since, in addition to the key rate, they are affected by increased macroprudential allowances and conditions for mortgage loans, which are now also being tightened. “The prerequisites for banks to reduce rates outside of shares are not created by the regulator’s rhetoric, based on which it follows that a softening of the monetary policy, and, accordingly, a reduction in loan rates should be expected no earlier than the second half of 2024,” the expert added.

Loans are in doubt

In the current macroeconomic realities, it is obvious that only preferential mortgage programs with government subsidies will remain available to the population. Only borrowers with a high level of income and a low debt load will be able to apply for other loans, says an expert at Banki.ru.

“A possible scenario for banks to maintain consumer demand could be to provide preferential lending conditions with a reduced rate for such “quality” clients, as well as for borrowers with high credit ratings. Then we could talk about the possibility of increasing the availability of lending in the context of the “expensive money” policy that has developed in the credit market,” Soldatenkova notes.

Let us remind you that in addition to the expected increase in the key rate, the issuance of loans is affected by recent changes in regulatory requirements. Thus, from October 1, the Bank of Russia increased risk ratios for loans. The measure is aimed at limiting the risks of borrowers and banks. New requirements for borrowers with high debt loads create restrictions on issuing loans.

There is an opinion that the changes may lead to the population increasingly turning to microfinance organizations and taking out loans at high interest rates instead of going to the bank and getting a loan at a clear and clean rate.

In turn, banking analyst Kutyin says that the new rules will create a certain barrier for MFOs regarding personal income tax. “Another thing is that there is a risk of a surge in private usury outside the regulatory field. This is a disaster for the poor, who are forced to take on debt – estimated at 2/3 to 3/4 of the population,” says the expert.

The main philosophy for the majority should be self-reliance, planning and austerity, as well as the search for new sources of income, the interlocutor believes. Self-employment and small business provide a number of opportunities. The community approach, traditional for Russia, is useful: the formation of consumer communities among relatives and friends. Joint consumption and planning can provide a synergistic effect and savings. The majority have the same goal – reducing the credit burden, ideally eliminating it and transitioning to a savings model.

Mortgage is not for everyone

General Director of Ricci Residential Real Estate Ekaterina Lomteva believes that all previously made decisions and restrictions are aimed at gradually cooling demand. Their maximum result will be noticeable in the segment of residential real estate in the affordable price category, since here any tightening of conditions is critical.

As for demand in the housing market, she says that today rates are still sufficient to obtain loans, while their increase has a greater impact on small developers who do not have access to a differentiated rate. “Therefore, if the rate reaches a critical level, such developers will decide to postpone the launch of new projects in anticipation of more affordable credit conditions,” the expert notes.

Gleb Shurpik from GloraX adds that any increase in the key rate will affect mortgage rates, as well as the availability of basic mortgage programs. In turn, an increase in rates on basic mortgage programs will have an impact on consumer activity in the real estate market. First of all, the increase in basic programs will affect the secondary housing market, where the average rate has already reached a virtually barrier level of 14–15%. The situation in the primary housing market is developing more favorably, thanks to the effect of preferential and family mortgage programs, IT mortgages, which stimulate demand. At the same time, the apartment market may suffer the most from increases in mortgage rates under basic programs, since it is not covered by preferential programs.

At the same time, demand currently remains quite high; a number of factors motivate clients to buy apartments right now. “This is the expectation of worsening conditions for mortgage lending, increasing inflation, and, as a result, rising prices, including for new buildings; it is obvious that they will rise even more in the future. In addition, the unstable ruble exchange rate also plays a role and encourages private investors to invest in real estate,” says a representative of the developer.

One way or another, banks are in a situation where there is no longer any question that they want to make money from the client in this way; they are forced to increase interest rates on loans following the key ones, which to some extent can deprive them of clients, and in In the future, this will affect both investors and the cost of other products.

Alexander Pakholenko, CEO of OM Development, in turn, says that, in essence, market players are playing cat and mouse. “As soon as mortgages become more affordable and spur demand, developers begin to raise prices. The Central Bank responds by canceling preferential mortgages, making them less accessible, demand falls, and prices go down. In fact, it’s time for all players to remember that construction is a system-forming industry that provides the citizens of our country with their own houses and apartments,” the interlocutor notes.

General Director of the real estate brokerage agency DOLGOV PRO Dmitry Dolgov also believes that mortgages will remain available for the purchase of new buildings, which cannot be said about the finished housing market. “For the secondary market, the decision of the Central Bank will be a negative factor, since special programs do not apply to secondary lots. Buyers will flock to the new buildings market, as it is simply more profitable,” the expert said.

At the same time, if we talk about the short term, the rate increase and new changes in itself will not become “critical” for the mortgage market for new housing.

“Even despite a possible rate increase on Friday, you shouldn’t expect a strong “drawdown” in demand: November and December are traditionally considered the most profitable for developers – they try to close the year as efficiently as possible and offer the most attractive discounts and promotions. In addition, developers are currently working together with banks on additional measures to stimulate demand in the form of various programs. Borrowers who fall under various preferential programs also play a significant role. But it raises concerns that they may also be significantly tightened or even abolished,” summed up the General Director of VSN Realty, Yana Glazunova.