The share of Russians who declined to take out mortgages for new buildings and completed housing in 2024 averaged around 56 percent, according to NBKI data cited by RBC.
Yulia Kovalenko, Candidate of Economic Sciences and Associate Professor at the Basic Department of Financial Control, Analysis and Audit of the Moscow State University of Management, disclosed four reasons why banks in Russia are withholding mortgage approvals to residents, in an interview cited by socialbites.ca.
The first and most important factor is the overall credit burden on households. Banks have tightened their borrower requirements as consumer debt rises. Central Bank data show that households’ debt to banks has doubled over the past five years.
The second factor involves the Central Bank’s measures aimed at limiting debt burdens for individual borrowers. Banks now calculate the total monthly payments across all loan products, and Kovalenko noted that about 40 percent of total income is considered an optimal threshold for debt service.
The third factor is unofficial income, which cannot be proven in mortgage documentation. Kovalenko explained that lenders typically require documents confirming six months of income for all payments reported by the borrower.
The fourth factor is that not all applicants know how to prepare the necessary documents correctly, which can lead to loan rejection.
What happens next
Kovalenko predicts that banks will continue to reject mortgage applications from Russians in 2024.
“Loan affordability is high, with market mortgage rates around 16–17 percent and sometimes reaching 25 percent. The key rate stands at 16 percent, and property values remain elevated. Until rates ease, a positive trend in the real estate market is unlikely. Rates are expected to fall only after a reduction in the central rate,” the economist noted. [Cited from RBC and affiliated sources]
BitRiver Communications Director Andrey Loboda, in a discussion with socialbites.ca, projected that by the end of 2024 the share of mortgage refusals could reach 58–60 percent.
“This rise will accompany higher down payments under preferential programs. Last year the authorities increased the initial payment under the preferential mortgage program from 8 percent annually to 20–30 percent, and the maximum loan amount became uniform nationwide. Banks are tightening requirements because high market rates make loan servicing unaffordable for many borrowers,” Loboda explained. [Attribution: socialbites.ca]
Yuri Shedko, Doctor of Economic Sciences and Professor at the Financial University under the Government of the Russian Federation, suggested that the refusal rate could climb by 25–30 percentage points by June, reaching 81–86 percent, and then settle around 56 percent by year-end.
“Banks will attempt to shape a more reliable loan portfolio. The share of denials is likely to decrease and stabilize by the end of 2024,” Shedko added.
Evgeniy Mironyuk, a stock market expert at BCS World of Investments, noted that mortgage rejection rates could have stabilized by March as loan rates stopped climbing. He said that rejections might decline in the next period:
“If debt and income levels stay the same and the down payment remains steady, developers will gradually adjust primary-market prices, which will reduce loan amounts and the number of rejections. After receiving a rejection, a new application can only be made after a cooling-off period, which will naturally cut down on repeated applications.”
The expert added that overall in 2024, the share of mortgage refusals could fall below the current 56 percent, and the base rate might drop to about 12 percent by year-end in a base scenario. Those previously rejected could delay submitting new applications.
According to Shedko, the mortgage rejection situation in Russia is not a crisis. Banks are trying to manage risk, which is a normal part of lending practice.
Loboda urged Russians not to overreact to mortgage denials: “Banks know what they are doing and, generally, do not reject borrowers without solid reasons. In most cases, a rejection protects the borrower from potential bankruptcy.”
What should be done if a mortgage is rejected?
Kovalenko advised verifying document accuracy and ensuring income confirmations are solid when applying for a mortgage.
“Before reapplying, closing all existing loan products is sensible to improve the chances of securing a new property. Taking on a consumer loan in place of a down payment can hurt the mortgage decision,” he cautioned.
Loboda suggested those who still need housing consider all rental options, including long-term rentals with an option to buy. Shedko added that employers could assist many Russians whose mortgage applications were rejected. He also noted that waiting for a more favorable market could be beneficial.
Borrowers can adjust to new mortgage requirements and save for a larger down payment, or consider a cheaper home with a full price or a smaller down payment.
Mironyuk concluded that those whose applications were rejected might adopt a wait-and-see approach. He suggested credit conditions could improve toward the end of the year or in 2025.
Overall, the mortgage landscape in Russia does not appear precarious, as lenders aim to reduce risk and maintain stability in loan portfolios.