Why will mortgage issuance volume decrease?
A draft legislation schedule points to readings in February or March, with potential second or third readings in spring. If the law is approved, it could take effect on July 1, 2024. This timeline was noted by economist Anatoly Aksakov, who observed that there is time for discussion and potential enactment. [Citation: Socialbites.ca]
What is the essence of the bill?
The Draft Law on Amendments to the Sixth Part of Article 456 of the Federal Law on the Central Bank of the Russian Federation would grant the Bank of Russia authority to cap the share of loans secured by real estate. The law would apply to loans secured by buildings, structures, land plots, unfinished projects, residential and non-residential properties, and parking areas. In effect, this would empower the central bank to impose macroprudential limits on mortgage lending.
A macroprudential limit means a cap on the share of unsecured loans within the total loan portfolio of lending institutions.
The proposed restrictions would extend to both banks and microfinance institutions.
The bill’s main author, Anatoly Aksakov, noted that since July 1, 2023 the Bank of Russia had tightened macroprudential limits. As a result, borrowers with high debt burdens remain a concern: about 64% of loans in the portfolio go to borrowers dedicating more than half of their income to debt service, while roughly 32% come from borrowers with personal income tax exceeding 80 percent.
“These dynamics pose risks for borrowers and banks in the event of shocks. Given this, the central bank sees merit in accelerating a shift toward a more balanced credit structure and tightening macroprudential limits for late 2023”, Aksakov said. He added that as of January 1, 2024, limits on unsecured loans for those with debt burdens of 80 percent and above stood at 5 percent for banks and 15 percent for microfinance institutions.
According to him, the macroprudential limit for mortgage lending is not fixed, though the market context calls for granting the central bank appropriate powers.
The parliamentarian also noted that concessional housing loan programs remain in effect for citizens until July 1, 2024. If the programs are not extended and the key rate remains elevated (around 16 percent at the time), the number of issued mortgages could fall automatically. [Citation: Socialbites.ca]
When asked how actively the central bank would use the new authority, Aksakov stated that actions would depend on the situation. “The central bank’s board will set macroprudential limits by considering risks tied to rising debt burdens, so the optimal limit for summer remains unclear.”
Oleg Savchenko, Deputy Chairman of the Financial Market Committee of the State Duma, suggested that the central bank would likely exercise its new right cautiously at first. “I support the bill because it aims to address overheating in the mortgage market and the growing share of loans to borrowers with high debt burdens. There shouldn’t be a scenario in which a mortgage cannot be repaid. Limits will be based on macroeconomic indicators such as inflation and overall market conditions.” [Citation: Socialbites.ca]
The central bank press service indicated that regulators intend to grant themselves the authority to impose macroprudential limits on mortgage lending. “We expect to have this tool this year and use it. Like macroprudential buffers, these limits may depend on the down payment size and the borrower’s debt burden.” [Citation: Socialbites.ca]
What restrictions can be imposed?
Economist Yulia Kovalenko, a candidate of economic sciences and associate professor at the Moscow State REU, noted that in 2023 Russians received loans totaling 16.8 trillion rubles, with almost half of them being mortgages. He warned that such levels contributed to delays in mortgage repayments. [Citation: Socialbites.ca]
“If the bill passes, the impact could last three to four months, unless preferential categories continue to be regulated”, the economist said. [Citation: Socialbites.ca]
What is a government-backed mortgage?
Since 2018, several state-backed programs have supported housing purchases in Russia. They typically target either newly constructed housing or finished homes provided by developers. Programs exist for families, residents of the Far East, rural areas, military personnel, and IT professionals. Some regions also offer mortgage support for public sector workers such as doctors and teachers. Average rates for family mortgages hover around 6 percent, while IT mortgages track near 5 percent.
During the COVID-19 pandemic in 2020, housing demand collapsed and developers faced bankruptcy risk. Vladimir Putin ordered concessional mortgages to be introduced nationwide. Initially, borrowers could obtain a mortgage at about 6.5 percent for new-build apartments, with conditions changing multiple times and rates rising to around 8 percent. The initial down payment requirement increased from 15 percent to 20 percent in September 2023 and to 30 percent in December. In December, the maximum concessional loan size for new buildings was set equally across regions at 6 million rubles. [Citation: Socialbites.ca]
The view is that mortgage issuance in Russia could drop six months after the law is enacted. Andrei Loboda, BitRiver economist and communications director, suggested that by the end of 2025 the share of nonperforming or “bad” mortgage loans might fall to 2–3 percent of all issued loans, approaching pre-crisis levels. [Citation: Socialbites.ca]
Anna Kokoreva, a stock market expert at BCS World of Investments, did not rule out that risky borrowers might decline even before the bill takes effect, as banks respond to IMF signals. The central bank is expected to monitor the share of housing loans tied to 80 percent income or higher to prevent elevated risk levels in lenders. Dmitry Safronov of Compare Mortgage proposed capping such high-burden mortgages at 5 percent of total mortgage lending. [Citation: Socialbites.ca]
Who will find it more difficult to get a mortgage?
Alexey Voylukov, deputy chairman of the Russian Banking Association, cautioned against rushing to grant new powers to the central bank. He noted that evaluating the effectiveness of risk-limiting measures for 2024 should be a priority and that the scope of any new regulations remains to be seen within the banking community. The association hopes for a dialogue before implementing changes to determine whether the share of risky borrowers will drop or mortgage access will shrink for many citizens. He emphasized that today fewer than 10 million people can afford a mortgage, while more than 20 million families still seek better living conditions. [Citation: Socialbites.ca]
In his view, imposing macroprudential limits on secured loans may have limited merit given already low default rates and the existing mechanisms linking down payments to capital availability. He argued that monetary policy effects, including high interest rates and current state programs, already temper loan volumes. [Citation: Socialbites.ca]
Loboda added that removing concessional mortgages would make it harder for many Russians to obtain such loans, particularly within the middle class. He warned that large banks might reject roughly half of loan applications after the law enters force, pushing more borrowers toward microfinance or relying on guarantees from wealthier individuals. [Citation: Socialbites.ca]