On the growth of debt among Russians reported “Izvestia” newspaper December 27. The press service of the Central Bank told the publication that 60 percent of loan debt is due to mortgages backed by concessional programs. Experts interviewed by the newspaper said that the increase in the debt burden is a serious risk not only for debtors but also for banks, and that banks have the right to take away the apartment in case of non-payment of the debt, because banks use it as collateral for a housing loan.
The share of loans with overdue payments of more than 90 days (NLP 90+) in mortgages is currently at a very low level, the press service of the Central Bank told socialbites.ca. Shares fell in ten months 0.6% (minus 0.1 percentage points from the beginning of 2023). But Central Bank is concerned about the quality of housing loans given.
“Under the influence of macroprudential measures, the share of mortgages with LTV 80+ (with less than 20% down payment) is gradually decreasing. But in absolute terms the volume of such mortgages is still high. A mortgage with a small down payment carries a higher level of risk.
To reduce the issuance of risky mortgages, the Bank of Russia will additionally increase risk coefficient premiums for loans with high personal income tax from March 1, 2024. (An indicator of the debtor’s debt burden. For example, if it is 50%, it means that half of the monthly income goes to loan repayment)“, noted the press service of the Central Bank.
Additionally, in September, the minimum down payment for all government-backed programs increased to 20 percent, and for “Concession mortgages” (8 percent annually) from 20 percent to 30 percent in December.
“This will also help improve the quality of issuance. Therefore, in the future we can expect a decrease in the issuance of risky mortgages,” concludes the press service of the Bank of Russia.
Will Russians be able to pay their mortgages?
Doctor of Economic Sciences, Professor of the Department of State and Municipal Administration of the Financial University of the Government of the Russian Federation Yuri Shedko, taking into account the inflation forecast for 2024 (4.5%) and wage increase rates ( 4.5% before 9.8%), Russians will be able to pay their mortgages.
“At the same time, the wages of those working in the fields of education, health, social security, culture and science are indexed at 9.8 percent. “It is unlikely that there will be major defaults on mortgages in Russia in 2024 and in the coming years,” Shedko said.
Valery Emelyanov, stock market expert at BCS World of Investments, agrees with him.
“If we see some kind of crisis in the mortgage market, it’s clear it won’t happen in 2024.. Provided, of course, that the state does not reset all aid and stop payment of previously guaranteed loans. The essence of the crisis may be different: as state support ends, there will be no new buyers. And developers will have to somehow sell the accumulated fund, and sellers of private apartments will follow them and prices will begin to fall. But even this is only one of a dozen neutral scenarios,” the expert said.
According to him, Russian banks apply quite strict filters for mortgage holders. Therefore, the share of defaulters is rarely 0.5% even in the worst years. There are people like this now 0.3% Emelyanov explained that the increase in overdue payments lags far behind the increase in the issuance of new mortgages.
Candidate of Economic Sciences, Associate Professor of the Department of Finance at the Russian University of Economics for Sustainable Development. GV Plekhanova Maria Ermilova admitted that with the general deterioration in the economic situation and the acceleration of inflation rates, a deterioration in the loan repayment situation may occur.
“This is true for every year when inflation rises and citizens’ incomes do not increase in proportion to the increase in expenses. But citizens still try to pay off such loans first,” he emphasized.
Will banks start buying flats?
Experts interviewed by socialbites.ca are sure that if the borrower faces a difficult financial situation, banks will first of all try to help him. Therefore, in case of problems, you need to contact the bank as early as possible and conduct a constructive dialogue with it, BitRiver financial analyst Vladislav Antonov advised.
“Banks will most likely try to restructure their debts” (change of loan agreement terms or loan holidays that reduce the monthly payment – deferment or refinancing of loan repayment – taking out a new loan to pay off the old loan at a lower rate) and making concessions to debtors who find themselves in a difficult situation. Banks are primarily interested in returning the money, not in obtaining collateral. Seizing the flats is a last resort“, says the analyst.
According to Emelyanov, banks are bad at selling housing with collateral. More precisely, they often sell it at a big discount, according to the principle of “even a tuft of wool from the black sheep.”
“This is a predetermined loss. The bank does not expect to receive an extra profit from such apartments. But in the total mass of mortgages of direct bankrupts – a fraction of one percent. These even if the bank literally begs them to extend the loan, refinance or get a deferment These are people who cannot pay.
It is very difficult to lose a mortgaged apartment. “Banks need regular payments, not quick repayments,” explained the expert.
Shedko did not rule out that with the increase in the number of loan defaults, banks may use the mechanism for the recovery of mortgaged apartments on a wider scale.
“The law provides for this measure in cases where the debt amount is more than 5 percent of the cost of the mortgaged apartment and the delay period is more than three months,” he said.
According to Ermilova, if the financial situation becomes more complicated, it is better to take advantage of a credit holiday first. If the situation worsens significantly, there is an option: bankruptcy, but he added that this is a last resort and there may still be issues with the security and the property will have to be sold.
Shedko added that the debtor can sell the mortgaged apartment and pay off his debt to the bank.
How many people might lose their homes?
Fewer people may be at risk of apartment repossession %one Shedko believes that there are debtors. Antonov agreed with him. According to their forecasts, individual bank customers who find themselves in a very difficult life situation may face the risk of having their apartments taken away.
Ermilova, on the other hand, has a more pessimistic assessment.
“The share of those who cannot repay the loan, 10%. “But there are many factors that can change this in one direction or another,” he said.
These factors include the general situation in the economy and geopolitics, the dynamics of wages, rising prices, force majeure for the borrower – for example, a prolonged illness with loss of ability to work, etc.
What are you thinking?
Source: Gazeta
Ben Stock is a business analyst and writer for “Social Bites”. He offers insightful articles on the latest business news and developments, providing readers with a comprehensive understanding of the business world.