The mortgage market may cool for several reasons: if demand for housing decreases, loan interest rates rise or conditions for borrowers become stricter.
Increasing the down payment on concessional mortgages in Russia to 30 percent will help slightly slow down the market in 2024, the Central Bank press service explained to socialbites.ca. (In September, the minimum down payment increased to 20% for all government-backed programs, and in December it increased to 30% for “Preferential Mortgage” only. and so-called macroprudential surcharges on banks that provide mortgage loans. (The Central Bank has been applying a macroprudential premium for housing loans since 2019: when giving loans, the bank must evaluate the risk level and create additional capital accordingly. The higher the premiums, the greater the capital reserve that banks must approve. For example, 80 percent of its income (The allowance for people who give more than 100,000 loans and whose bank apartment is not mortgaged will be from five to nine. Now the maximum value of the allowance is nine. This means that when calculating capital adequacy standards, every 100 rubles of a mortgage loan will “cost” the bank 900 rubles).
“The main impact on the mortgage market portfolio will come from the increase in the key interest rate.” (On December 15, the Central Bank increased the interest rate by 100 basis points for the fifth consecutive time to 16% annually). Given these factors and the assumption that the main broad program (preferential mortgages) will end on July 1, we expect more balanced mortgage growth this year. 7% to 12%“, noted the press service of the Central Bank.
According to the regulator, the housing loan market in Russia grew by 17.7% in 2022. The Central Bank expects the growth of the Russian mortgage market to range from 24% to 27% by the end of 2023, and from 10% to 15% in 2025 and 2026.
“Conditions for mortgage loans, including preferential ones, have already been tightened sufficiently. New mortgage issuance volumes have been falling since October 2023. If in September volumes reached almost 1 trillion rubles, in November this figure dropped to 726 billion rubles. We will likely see another adjustment based on December results. However, a significant part of issued mortgages is still promoted by concessional programs: sometimes they are combined with the support of banks and developers trying to sell more housing before the end of the year,” noted Vice President of the Russian Federation Alexey Voylukov. Banks explained to socialbites.ca.
Some banks began to limit the issuance of concessional mortgages in January. They will give loans only to those who buy housing from developers – bank partners. For example, Sovcombank increased the down payment for government programs to 50%, with concessional mortgages at 8% and family mortgages at 6%.
In the secondary market, Russians tried to buy mortgages before new interest rate increases after the key rate. After it was increased to 16 percent, mortgage interest rates in the market rose to 16-25 percent.
When will apartments become cheaper?
According to Svetlana Bardina, director of the residential real estate sales department of the Summa Elements group of companies, government measures can only lead to a decrease in prices for apartments in the mass segment and business class.
A decline in prices for new buildings is expected no earlier than October-November 2024, said Andrei Loboda, BitRiver’s economist and communications director.
Ruslan Syrtsov, General Director of the Metrium company, emphasized that the owners of secondary apartments are also reluctant to reduce prices during the sale.
“However, on average, advertising prices are reduced by 100 thousand rubles every week. As a result, we may see a decrease in prices by the end of 2024. 15% from year to year. Prices will rise only after the key rate is reduced,” Syrtsov predicted.
Evgeniy Mironyuk, stock market expert at BCS World of Investments, added: Resale sellers will choose to temporarily remove lots from sale rather than lower prices.
“What will force them to put the flats up for sale again may be the loosening of the Central Bank’s monetary conditions and the resulting decrease in housing loan interest rates. If there is no significant decrease in interest rates in the economy in the second half of 2024, the secondary market will respond with a net decrease in prices. However, Mironyuk emphasized that the impact may occur earlier in the “low” summer season.
Will they buy a flat?
Rariteco Development Director Ekaterina Borisova expects Russians’ demand for mortgages and the number of transactions in Russia to decrease in 2024.
“Russians will be less active in buying apartments on credit, especially second-hand. This will especially affect housing markets in big cities where price levels are high. High mortgage rates in the secondary market will also radically reduce the number of transactions with borrowers and owners of private apartments.
In addition, very few Russians who previously expected to spend half as much,” the expert said, will be able to quickly accumulate the missing amount for the down payment on a concessional loan for new buildings.
Candidate of Economic Sciences, Associate Professor of the Department of Finance at the Russian University of Economics for Sustainable Development. GV Plekhanova Maria Ermilova is confident that mortgage demand in Russia will begin to decline in the first quarter of this year.
Konstantin Kharchenko, Associate Professor of the Department of State and Municipal Administration at the University of Finance, suggested that people will sell second apartments to improve their living conditions and take out a mortgage on a new building. Voylukov did not recommend making such decisions quickly.
“An apartment is not a financial instrument and not the best object for financial speculation. You need to calculate everything calmly, and the main thing is to determine the purpose of such a decision. We are talking about improving your own living conditions, moving to another region or city, or moving to a new home. You need to calculate rental prices and payments for your own apartment. And only after that decide to buy real estate,” Voylukov recalled.
According to Loboda, if such a decision is made, it will be more profitable to first take out a concessional mortgage while the program is in force, and then sell the second home.
“Secondary flat buyers will wait for prices to drop. “When the prices of new buildings fall, it is better to buy a new apartment with a concessional mortgage and at the same time sell your existing home in the secondary market and pay off the mortgage debt,” he advised.
Syrtsov noted that buying a second apartment can now be justified in cash and if the required amount is available.