The government has launched a pilot preferential mortgage program aimed at financing private residential construction. Borrowers are not required to sign agreements with professional developers. The order establishing the program was signed by Prime Minister Mikhail Mishustin.
The program sets a maximum preferential rate of 9% per year. The cap on loan amounts varies by region: up to 12 million rubles in Moscow, St. Petersburg, and the Leningrad region, and up to 6 million rubles in other areas.
In 2022, about 8,000 loans were anticipated to be issued under the pilot, supporting private housing construction with the intent of improving living conditions for more Russians. This was stated by a government spokesperson involved in the program.
Who qualifies for the new mortgage?
According to Yulia Finogenova, a professor at the Prydnestrov State University’s Department of State and Municipal Finances, the program could involve roughly 50,000 families, reflecting a high level of interest in homebuilding loans. She noted that last year, a majority of new residences were built by private citizens.
One square meter of private housing costs between 11,000 and 20,000 rubles to construct, depending on the materials used, before finishing. A two-story 150 m2 house would cost around 6 million rubles. The funds provided by the new program for building private, economy-class housing are therefore substantial enough to cover the core construction, though finishing costs remain an additional consideration.
These new homes are suitable for use as country houses during the summer or as primary residences, provided they are well insulated. However, some industry observers caution that current price levels for building materials and labor may limit the viability of the stated budget in many regions.
Additionally, some experts argue that the program might better serve individuals who already own or are close to finishing incomplete projects, offering a path to completion with available financing. The program envisages a relatively short construction period of 12 months, which could push builders toward rapid, modern construction methods.
There are concerns about practical execution, including potential delays from specialized equipment rental, excavation, or site leveling, and the absence of standardized contracts with builders. Analysts also warn about possible sanctions if borrowers fail to meet annual construction targets, highlighting the need for clear rules and oversight.
Is eight thousand mortgages enough nationwide?
Banking analysts acknowledge that 8,000 loans represent a small start, enough to test the approach and identify typical risks and practical difficulties. Before expanding the program, industry players emphasize the importance of developing a segment capable of delivering fast, affordable turnkey homes and then extending financing to buyers.
Experts stress the necessity of assessing the true cost of a finished house, which presently exceeds the 6 million rubles figure in many regions. Regional differentiation is urged to reflect local construction costs and material choices, which can vary widely across Russia from natural stone to timber.
What risks do banks face?
From a regulatory perspective, the program effectively shifts some decision-making to banks. While the lending parameters may be manageable, there are notable risks linked to the collateral structure. The primary security is land, which in many areas outside major cities cannot fully cover the loan amount. This raises questions about the adequacy of collateral when the borrower’s home is not yet completed and the construction contract has limited formal oversight.
Independent assessments of land value and the anticipated value of a future home remain challenging, as reliable valuation practices and regulated standards for developers are not universally established. There could be concerns about completing construction in a timely manner and selling the property after completion, especially if the project has not been brought into operation by a qualified contractor.
Industry specialists also point out the difficulty of accurately valuing the construction site and estimating the future home cost. There are relatively few land valuation institutions in the country, and arranging reliable, outsourced evaluations for the house is essential. There is also concern about the potential for opaque practices or mispricing, which could complicate lender risk management and borrower accountability.
In addition, the risk assessment for the site and the hypothetical home cost must be thorough. The market lacks a robust framework for evaluating land and housing projects, which adds uncertainty to the banking risk profile and could influence the ability to secure financing at favorable terms.
The overall takeaway is that banks will need to exercise prudent underwriting, clear cost estimation, and transparent agreements with builders to minimize potential problems and ensure that lenders can responsibly extend funds under the program.