Mortgage rates dropped
Russian President Vladimir Putin, speaking at the 25th St. Petersburg International Economic Forum, proposed lowering the preferential mortgage rate to 7%. Previously it stood at 9%.
“I think it is possible to lower the preferential mortgage rate once again. Up to 7% now,” Putin stated.
He noted that after the rate cut, the preferential mortgage program would continue through the end of the year.
The government had raised the rate from 7% to 12% after the Central Bank upped the key rate to 20% at the end of February. It was later reduced back to 9%. The key rate remains at 9.5%, and the Central Bank has not ruled out further reductions.
what do banks think
Russian banks moved quickly to respond to the president’s proposal. Kirill Tsarev, First Deputy Chairman of the Board of Sberbank, said that as of June 17 the bank began pre-admitting applications under the preferential mortgage program for new buildings at a 7% rate. VTB also started accepting applications for government mortgages under the revised terms.
Marking a 7% rate as a positive signal for the market, bankers expect it to influence the achievement of national housing targets.
Since the pandemic, preferential mortgages have been the most popular form of government support. They serve as a benchmark for the housing sector. Experts believe demand for preferential housing loans could double as a result of the lower rate, supporting broader market recovery.
– observed Andrey Kostin, head of VTB, during SPIEF.
Anton Pavlov, Deputy Chairman of Absolut Bank, agreed that the rate cut is a favorable development. Absolut Bank began accepting housing loan applications at 7%. Lower borrowing costs expand the available credit line and reduce monthly payments. If a loan for a required amount could not be secured before, borrowers may now obtain a larger mortgage, thanks to cheaper funds.
He added that the rise in deposit rates has likely ended. Absolut Bank anticipates some Russian funds shifting toward real estate purchases.
“Getting a mortgage at well below inflation could spur investment demand for apartments. Clients who are hesitant or postponing a purchase may gain additional motivation to secure a loan to improve living conditions,” Pavlov noted.
demand will increase
Lower preferential mortgage rates are expected to widen options for people looking to improve living conditions by reducing the average monthly payment by 15–20%. This also creates room for combined programs where preferential mortgages are complemented by developer subsidies, according to Dmitry Tsvetov, director of development at the A101 Group of Companies, in an interview with socialbites.ca.
“The impact of the new terms will be noticeable roughly two to three months after they take effect. However, sizable price fluctuations are unlikely, as the new terms should support steady industry growth and stabilize purchase activity,” the author commented.
Analysts from Knight Frank Russia told socialbites.ca that a rapid rebound in real estate demand is not expected immediately after the rate cut. It may take several months for the market to recover.
“Demand is likely to pick up in the second half of the year, with the bulk of increased transactions compared to 2022 concentrated in mass housing,” said Olga Shirokova, Regional Director at Knight Frank Russia Consulting and Analytics. “Demand will rise, but not to levels seen in 2021.”
The uncertain economic climate, which affects household real income, is likely to cap rapid growth in new housing purchases. As a result, some Russians may choose to save, making a home purchase a riskier step, according to the analysts.
what will be the prices
According to Dmitry Taganov, head of the analytical department at Inkom-Nedvizhimost, a swift market upswing is not anticipated after the rate cut. A decline in citizens’ real incomes is expected to prevent developers from raising prices as sharply as last year.
“Many people cannot afford housing due to high costs, and confidence in future mortgage payments remains uncertain. We expect prices to ease gradually, and a market response may take more than a year to become evident,” Taganov suggested.
Nadezhda Korkka, managing partner of Metrium, noted that the only reason prices might rise would be developers’ costs. “Until cost controls on materials are in place, supply chains with foreign partners are still strained. For items like elevators and climate systems, there are few Russian substitutes in terms of quality and reliability,” Korkka explained.
Vladimir Shchekin, co-owner of Rodina Group, added that this factor could lift the cost per square meter. “Prices in the secondary market already rose by 30–40% over the last two years. The current average rate for secondary housing stands around 11.3%. That’s not very attractive,” he stated. Without a decline in secondary mortgage rates not covered by the program, the positive effect of the preferential rate cut would be limited. The primary market could see price growth, though not as rapidly as before. Construction costs, which rose by about 30% last year, may accelerate price increases for new builds,” he warned.
Mortgage broker Dmitry Rakuta agreed. He noted that the price of one square meter in Moscow now hovers around 250,000 rubles. He predicted that prices in the primary real estate market could rise by 10–15% in the coming months.