Why will mortgage issuance volume decrease?
“The law is planned to be adopted in the spring term. Around February-March, if the Russian government receives a response, a first reading could be held, and a second or third reading could be held in the spring. There is time, given that the law should come into force on July 1, 2024,” Aksakov told socialbites.ca.
The parliamentarian noted that concessional housing loan programs are in effect for citizens until July 1, 2024. If after that it is not extended and the key interest rate remains high (currently 16%. – socialbites.ca), the number of mortgages issued may be automatically reduced.
Answering the question of how actively the Central Bank will use the new right, Aksakov said that the Central Bank will most likely act according to the situation:
“The Board of Directors of the Central Bank decides to set a macroprudential limit, taking into account the risk factors of increasing the debt burden of individual borrowers, so it is now difficult to determine which limit can become optimal by the summer.”
Oleg Savchenko, Deputy Chairman of the Financial Market Committee of the State Duma, in a conversation with socialbites.ca, suggested that the Central Bank of the Russian Federation will probably initially carefully exercise its right to limit the issuance of housing loans.
“I support the bill; This bill aims to solve problems with overheating in the mortgage loan market and the increasing share of loans made to borrowers with high debt burdens. There shouldn’t be a situation where people take out a mortgage and have nothing to pay back. Savchenko said that the Central Bank will set limits based on macroeconomic indicators, including inflation, taking into account the market situation.
The press service of the Central Bank of the Russian Federation reported that the regulator considers it appropriate to give itself the authority to impose macroprudential limits on mortgage lending:
“We foresee that we will have such a vehicle this year and we will use it. “Like macroprudential buffers, macroprudential limits may depend on the size of the down payment and the debt burden of the borrower.”
What restrictions can be imposed?
Candidate of Economic Sciences, Associate Professor of the Basic Department of Financial Control, Analysis and Audit of the Main Control Directorate of the Moscow City REU. GV Plekhanova Yulia Kovalenko reminded that Russians received loans worth 16.8 trillion rubles in 2023, and almost 50 percent of the loans given were mortgages. According to him, this resulted in late payments on mortgage products.
“If the bill is passed, the impact should be expected to last for at least three to four months, but it will again if the regulation of preferential categories continues,” the economist said.
According to him, a decrease in the issuance of mortgages in Russia should be expected six months after the adoption of the law.
BitRiver economist and communications director Andrei Loboda admitted that by the end of 2025, the share of “bad” mortgage loans in Russia may fall to 2-3% of the total volume of mortgage loans issued, as in pre-crisis times.
Anna Kokoreva, stock market expert at BCS World of Investments, did not exclude that the number of risky mortgage borrowers will begin to decline even before the bill is adopted and comes into force, because banks are sensitive to the recommendations of the IMF. The central bank.
According to him, the share of housing loans provided in exchange for housing to borrowers who pay 80 percent of their monthly income for repayment should not exceed 30 percent of the bank’s total portfolio, otherwise there will be high risks for the financial institution. Dmitry Safronov, head of Compare’s Mortgage department, proposed limiting the share of such mortgage loans to 5% of the total mortgage loan volume.
Who will find it more difficult to get a mortgage?
Alexey Voylukov, Deputy Chairman of the Russian Banking Association, stated that from the moment this legal initiative appeared, the association recommended not to rush to grant such powers to the Central Bank:
“First of all, we advocated evaluating the effectiveness of the measures taken to limit the risks of mortgage loans in 2024. However, this initiative has been included in the agenda of the Central Bank of Russia and has been among the 2024-2026 Main Directives of the Financial Market since last year. “But what is more important here is what regulations and what restrictions the Bank of Russia will adopt within the scope of the implementation of the proposed bill.”
He expressed hope that the Central Bank would discuss the new powers with the banking community before implementing them.
“As a result of this debate, it will become clear whether the share of risky borrowers will decrease or whether mortgages will become less accessible to all citizens. Today, less than 10 million people can afford a mortgage. “At the same time, more than 20 million families in Russia urgently need to improve their living conditions,” he emphasized.
In general, Voylukov thinks that there is no point in imposing macroprudential limits on secured loans.
“Default statistics there are quite low and the mechanism linking down payment and capital allowances to prevent risks is already working effectively. “From the perspective of monetary policy objectives, the reduction in loans is already effectively affected by the high interest rate and the new parameters of state programs,” he explained.
Loboda explained that after the abolition of concessional mortgages, it will become more difficult for many Russians to obtain such loans:
“Currently a significant portion of the middle class falls into this category. This means that it will become more difficult for the majority of borrowers to obtain a mortgage. Nowadays, banks do not approve 15% to 40% of loan applications. With the adoption of this law, one in every two applications will most likely be rejected by large banks. People will start turning to microfinance organizations more frequently. “Or maybe they will get a mortgage under the guarantee of a richer person.”