The housing finance landscape may cool for a few reasons: softer demand for homes, higher loan costs, or stricter lending rules affecting borrowers.
Raising the down payment for concessional mortgages in Russia to 30 percent is expected to slow the market modestly in 2024, according to the Central Bank press service cited by socialbites.ca. Previously, the minimum down payment rose to 20 percent for all government-backed programs in September, and in December it increased to 30 percent for the Preferential Mortgage program only. The Central Bank has applied a macroprudential premium on housing loans since 2019, requiring banks to assess risk and hold additional capital. Higher premiums mean larger capital reserves. For example, when a bank issues a loan, roughly 900 rubles of capital may be required for every 100 rubles of mortgage exposure in certain scenarios, reflecting elevated risk coverage. (Central Bank communications, socialbites.ca)
“The main impact on the mortgage portfolio will come from the rise in the key interest rate.” In mid-December, the Central Bank lifted the rate by 100 basis points for the fifth straight time to 16 percent annually. With these measures and the expectation that the core program, the preferential mortgages, will wind down by July 1, a more moderate growth path for mortgages is anticipated this year, around 7 to 12 percent, according to the regulator’s press service.
Russia’s housing loan market expanded by 17.7 percent in 2022. The Central Bank projects growth in 2023 to reach roughly 24 to 27 percent, followed by a slower pace of 10 to 15 percent in 2025 and 2026.
“Conditions for mortgage lending, including preferential schemes, have already tightened sufficiently. New mortgage issuance has fallen since October 2023; after posting nearly 1 trillion rubles in September, volumes declined to 726 billion rubles in November. A December update is expected to show further adjustments. A substantial share of lending still flows through concessional programs, often bundled with bank and developer support to move housing before year-end”, noted the vice president of the Russian Federation, Alexey Voylukov. Banks provided these explanations to socialbites.ca.
What is a government-backed mortgage?
Since 2018, several state-backed mortgage schemes have operated in Russia. They generally apply to housing either under construction or completed but delivered through a developer. Programs exist for families, residents of the Far East, rural areas, military personnel, and IT professionals. Some regions also offer special programs to support public sector workers such as doctors and teachers. Typical rates run around 6 percent for family mortgages and about 5 percent for IT mortgages.
During the COVID-19 crisis in 2020, housing demand fell and developers faced liquidity risks. Subsequently, President Vladimir Putin ordered the introduction of privileged mortgages. Initially, borrowers could obtain a mortgage at roughly 6.5 percent for new buildings, with terms that have changed over time and rates climbing to around 8 percent. The down payment requirement rose from 15 percent to 20 percent in September 2023 and to 30 percent in December.
As of December, the maximum size of state-supported concessional loans for new buildings was standardized across regions at 6 million rubles; previously, Moscow, St. Petersburg, and the Leningrad region allowed up to 12 million rubles.
A number of banks began limiting concessional mortgage issuance in January, preferring partnerships with developers. For instance, Sovcombank increased the down payment requirement on government programs to 50 percent, while concessional mortgages stayed around 8 percent and family mortgages near 6 percent.
In the secondary market, buyers sought mortgages before further rate hikes following the key rate increase. After the rate was raised to 16 percent, mortgage rates in the market climbed to the 16–25 percent range.
When might apartments become cheaper?
Svetlana Bardina, director of the residential real estate sales division at Summa Elements, notes that government measures can only push prices down in the mass-market and business-class segments. Andrei Loboda, an economist with BitRiver, forecasts a price decline for new buildings not before October or November 2024.
Ruslan Syrtsov, general director of Metrium, emphasizes that owners of secondary homes are also unlikely to reduce asking prices quickly. Yet advertising prices have been slipping by about 100,000 rubles weekly, suggesting a potential year-end slide of around 15 percent. Price increases would likely resume only after the key rate is cut, Syrtsov adds. Evgeniy Mironyuk, a stock market expert at BCS World of Investments, notes that sellers may temporarily pull listings rather than slash prices. If monetary conditions loosen and loan rates fall, a net price decrease could occur in the second half of 2024, though the impact might show up earlier in the market, especially during the summer lull.
Will people buy a flat?
Rariteco Development Director Ekaterina Borisova expects a decline in mortgage demand and overall transactions in 2024. Buyers may pull back on purchases, particularly of second-hand homes, in major cities where prices are high. Higher secondary-market mortgage rates will further curb activity among borrowers and private-homeowners.
Many Russians who hoped to stretch their budgets will struggle to accumulate the down payment for concessional loans on new builds. Maria Ermilova, candidate of economic sciences and associate professor at the Russian University of Economics for Sustainable Development, expects mortgage demand to ease in Q1 2024. Konstantin Kharchenko, associate professor at the University of Finance, suggests some people might sell a secondary apartment to fund a move to a new-build with a concessional loan. Voylukov cautions against rushing such decisions and reminds buyers to consider living needs, rental costs, and the total financial picture before purchasing. A shift toward using concessional loans first and then selling a secondary unit may occur, notes Loboda. Syrtsov adds that a cash-backed secondary purchase could be sensible if funds are on hand.
In summary, the market faces a tighter lending environment and higher borrowing costs, with some potential for price stabilization or modest declines in the near term, particularly for new-builds under government programs. Policymaker moves, such as rate adjustments and down payment requirements, will continue shaping both demand and pricing in the Russian housing sector. Citations: Central Bank communications, socialbites.ca; industry analysts quoted within the piece.