Banks began to give mortgages at a rate of 7 percent. Will the real estate market recover?

Mortgage rates dropped

Russian President Vladimir Putin at the 25th St. Petersburg International Economic Forum (SPIEF), he suggested that the rate under the preferential mortgage program be reduced to 7%. Previously, this figure was 9%.

“I think it is possible to lower the preferential mortgage rate once again. “Up to 7% now,” said Putin.

He noted that after the interest rate cut, the preferential mortgage program will continue until the end of the year.

The government increased the preferential mortgage rate from 7% to 12% after the Central Bank raised the key rate to 20% at the end of February. Later, it was decided to reduce the rate to 9%. The key rate is now at 9.5%, but the Central Bank is not excluding further cuts.

what do banks think

Russian banks quickly responded to the president’s proposal. Kirill Tsarev, First Deputy Chairman of the Board of Sberbank, said that as of June 17, the credit institution started to pre-admit applications under the preferential mortgage program for new buildings at a rate of 7%. VTB also began accepting applications for government mortgages under the new conditions.

Reducing the rate to 7% is a positive signal for the entire market and will also affect the fulfillment of national targets for commissioning new homes.

Since the pandemic, preferential mortgages have been the most “popular” of government support programs. It acts as a reference point for the entire housing sector. Today, we can say that the recovery in preferential housing loan demand will increase at least two times.

– said the head of VTB, Andrey Kostin, among the SPIEF.

Anton Pavlov, Deputy Chairman of Absolut Bank, agrees with him. He described the mortgage rate cut as a very good deal.

“Absolut Bank” started to accept housing loan applications at a rate of 7%. Lowering the rate will increase the available line of credit and reduce the monthly payment. That is, if the client did not get a loan for the amount necessary to purchase the desired object earlier, he will be able to take out a large mortgage, thanks to the reduction in the cost of borrowed funds. ” pavlov

He added that the deposit rate hike is now over. Absolut Bank expects some of the Russian funds to be directed towards real estate purchases.

“The opportunity to get a mortgage at a well below inflation rate could further stimulate investment demand for flats. Customers who have doubts or postpone the purchase will receive additional impetus to take out mortgages to improve their living conditions, ”says Pavlov.

demand will increase

Lowering preferential mortgage rates would significantly increase opportunities for those seeking to improve their living conditions by reducing the average mortgage payment by 15-20%. This also opens up additional opportunities for the development of combined programs, in which preferential mortgages are combined with subsidies from developers, Dmitry Tsvetov, director of development of the A101 Group of Companies, said in an interview with socialbites.ca.

“The effect of the new terms for issuing preferential mortgages will become noticeable approximately two to three months after the new terms start. However, noticeable price fluctuations should not be expected – new conditions can be considered as a guarantee of sustainable development of the industry and a condition for stabilizing purchasing activity in the market, ”said the author.

Analysts from Knight Frank Russia, in a conversation with socialbites.ca, pointed out that it is not worth expecting an immediate increase in demand in real estate purchases after a drop in the preferential rate. It will take several months for the market to recover.

“Demand will most likely start to recover in the second half of the year, the main increase in the number of transactions compared to April-May 2022 will be seen in the mass housing segment. Knight Frank Russia Consulting and Analytics Regional Director Olga Shirokova said, “Demand will undoubtedly increase, but in 2020-2020, where the number of transactions exceeds all records, “Not as much as it was in 2021,” he said.

The uncertain economic situation in the country, which affects the real incomes of the population, will prevent a multiple increase in growth for the purchase of new housing. As a result, some Russians now choose to save, and for them buying an apartment seems like a risky step, he said.

what will be the prices

According to Dmitry Taganov, head of the analytical department of Inkom-Nedvizhimost, a rapid increase in the real estate market is not expected after the rate cut. The decline in the well-being of citizens, most likely, will not allow developers to raise prices as sharply as last year.

“Most of the population cannot afford to buy housing because of the exorbitant cost, and people do not have confidence in their ability to pay their mortgage in the future. In our opinion, prices will decrease very slowly. True, it will take more than a year for the market to noticeably react to the current demand, ”Taganov suggested.

Nadezhda Korkka, managing partner of Metrium, noted that the only reason for the possible increase in housing prices could be the costs of the developers.

“Until a mechanism was adopted to control the cost of materials, many developers broke their production and logistics chains with foreign partners. For some products – elevators, climate systems – there are no comparable Russian alternatives in terms of quality and reliability, ”Korkka explained.

It is this factor that can accelerate the cost per square meter of housing, says Vladimir Shchekin, co-owner of Rodina Group.

“Prices in the secondary market have already increased by 30-40% in the last two years. Now the average rate for secondary housing is around 11.3%. This is not a very attractive bar.

Without a reduction in secondary home mortgage rates that are not covered by the preferential government program, the positive effect of lowering the preferential rate would be limited. Prices will rise in the primary market, but not so fast. However, the increase in the cost of construction, which increased by 30 percent only last year, could accelerate the increase in new building prices, “he said.

Mortgage broker Dmitry Rakuta agreed with him. According to him, the cost of one square meter of housing in Moscow now averages 250 thousand rubles. It was concluded that prices in the primary real estate market may increase by 10-15% in the coming months.