Apartment on a mortgage: when the moneylending boom ends

What do these phrases mean in consumer language? Will mortgages be affordable and what kind of "bubble" in the housing market are the experts talking about?

Yulia Suntsova

In 2020, Russia set a record for mortgages issued: banking organizations invested 4.4 trillion rubles in housing loans (+ 51% by 2019 and + 43% by 2018). The main driver of growth was the preferential state mortgage lending program - 6.5% per annum for the purchase of apartments in new buildings.

2021 kicked off with even more accelerated numbers, which broke the previous year's record. In the first half of 2021 alone, housing loans were issued in the amount of 2.7 trillion rubles (+ 74% compared to the same period in 2020). The volume of loans issued continues to grow, despite the huge jump in housing prices and the fact that since July 1, the conditions of concessional lending have changed for the worse for the consumer.

The Central Bank monitored the penetration of mortgages in different regions - at the end of the third quarter of 2020, the average indicator was 4–5%, but it fluctuated several times depending on the specifics of the subject. In Chechnya, for example, the share of borrowers in the total population is 0.4%, in the Tyumen region - 9.5%.

Experts predict the issuance of mortgages for 4.9-5 trillion rubles. for both semesters of 2021, which is 10-13% compared to the previous year. The Central Bank's forecast is as follows: the overall rate of mortgage growth in 2021 will exceed 20%.

The level of distribution of mortgages in Russia, albeit low in comparison with other countries, but the limit of issuance, according to the head of the Central Bank, has been reached.

When analyzing the volume of housing loans issued, not only the number of borrowers or the share of issued funds to GDP are estimated. The most important parameters remain income, family solvency, and the ability to serve the obligations undertaken on a long-term basis.

“I recently looked at statistics on the proportion of households with a mortgage in different countries, depending on the average level of disposable income. And by these ratios, we have already practically approached the limit of mortgage growth. We must be very careful to ensure that the mortgage grows in line with the growth of incomes of the population", - said Elvira Nabiullina in an interview with RBC, answering the question whether to expect a new record in the issuance of mortgages to the population this year. - "A mortgage is a loan for many years, it needs to be serviced. There must be an appropriate level of family income. The growth of mortgage lending should be commensurate with the growth of income, but not only, the level of income must also be taken into account".

"The regulator spoke about the need to cool the mortgage market, as it fears a "bubble" - a gap between the volume of debts of citizens and their ability to repay these debts on time. The problem is not that the 4.4 trillion rubles issued are too much for banks or for the country. The question is in the ratio of the volume of loans issued and the already arisen debt on them. Now the debt exceeds the volume of issued loans twice. When new mortgage loans are issued, the risk of accumulation of debts on previous loans increases, and this is already threatening a debt crisis - when the population, having collected loans, with a low income growth rate, begins to delay payments, accumulates debts and stops servicing loans. But it is precisely the monthly payments that clients transfer to banks that are the main source of new loans for new borrowers. A balance between the pace of loan disbursement and the regular repayment of loans by clients is critical. The risk of non-payments is now growing, because after the pandemic, citizens' incomes have decreased”, - explains Pavel Sigal, First Vice President of Opora Rossii.

Uncertainty or a vague idea of what will happen next with the income of the population is a big risk for the banking sector and the regulator as well. The slowdown in the issuance of mortgages in this sense means that a forecast has been made. And in terms of the dynamics of economic development and growth of incomes of the population, this forecast did not allow us to take calmly the volumes of housing loans that have already been issued, says economist Igor Nikolayev:

"As you know, our Central Bank is always more pessimistic than the Ministry of Economic Development. How will they stop? Nabiullina said that the issue will not grow in the same way as before. They will choose, I think, the traditional approach to regulation - toughening the conditions for bank rates, requirements for borrowers and requirements for credit institutions themselves, and some of these will be combined".

- In early 2020, due to the coronavirus and strict quarantine, the mortgage market in the country stagnated. Citizens have drastically cut spending as they are faced with extraordinary circumstances, namely: incomes are falling, movement is limited, borders are closed. The needs of the people have been redefined. Rush demand for mortgages since the summer of 2020, one might say artificial, is stimulated by the government program - the very preferential mortgage. Against the background of the low key rate of the Central Bank of the Russian Federation of 4.25%, the weighted average rates for the programs are dropping to 6%, says Pavel Sigal:

As a result, on the one hand, at the end of last year, the country issued a record volume of loans for the purchase of real estate - more than 4 trillion rubles, on the other hand, prices for real estate increased simultaneously, both in the primary market and in the secondary market. This aggregate became the factor that gradually began to reduce the demand for home purchase on credit. The reason is that low bank rates still do not compensate for the rise in house prices. On average across the country, prices have risen by 25% in 2020. This year, the growth in the value of real estate continued - since January 2021, it has risen in price by an average of + 15-20%. Accordingly, in the future, the tightening of preferential housing programs, an increase in the key rate (now it reaches 6.75%) and an increase in interest rates on loans will become factors limiting the demand for mortgages. But the current slowdown in the mortgage market in Russia is neither good nor bad, it only means that it is bouncing back after a rapid increase in demand and prices for apartments.

4.4 trillion in soft bank loans is definitely a positive impact on the economy. Several debt relief for borrowers, increased consumer demand and, at the same time, money poured into the maintenance of the construction industry. Another thing is that how effective this measure will be will be clear only after a lapse of time.

- In the short term - unconditionally, everyone is fine. We will be able to judge the long period only when we see how exactly this measure affected the economic situation, people's incomes and whether borrowers will be able to service these loans taken out in the future. If the answers are positive, then everything was done correctly. If the results are negative, then there was nothing good in this mortgage shaft, and the calculations were made incorrectly. Once again, the role of the first violin in lending to individuals is played by the income of the population. Why are other countries not afraid to issue a lot of loans? Because they clearly see the prospects for economic growth and the income of working people. We have a record issue - it is still frightening, because there is no confidence in the stability of income, comments Igor Nikolayev.

Bank rates for servicing mortgages will continue to grow, this has already become noticeable, especially after the next increase in the key rate of the Central Bank of the Russian Federation. If last year the average mortgage rate in the Russian Federation, taking into account the preferential state programs, was 5.5-6.5%, now it is close to 8%, and in the future it will be about 9-10%.

"Of course, lower rates will remain for partner programs of banks and special programs - rural mortgages, housing for young families, mortgages in the Far East, where rates have been and will remain at the level of 2-3%. But demand is obviously declining in the country as house prices have risen and bank loan rates have also increased. Accordingly, there is a limit to the growth of mortgage issuance, as the head of the Central Bank says. It is likely that the record of last year, when loans worth 4.3 trillion rubles were issued in the country, will not be broken by the end of 2021. I think the volume of issued mortgage loans will decrease by about 25-30%", - says Deputy Director of the RUSSTRAT Institute Yuri Baranchik.