Credit recovery: what is the reason for the restoration of the mortgage market in Russia

In May 2020, the volume of mortgage loans issued in Russia, according to preliminary estimates, immediately increased by 8% compared to the same period in 2019 and reached 205 billion rubles. The indicator returned to growth after a sharp collapse in April (by more than 15%). This is stated in a joint report by DOM.RF and Frank RG.

The indicators indicate a restoration of the mortgage market after a decline in April, when, under the influence of the introduced measures of self-isolation, the issuance decreased significantly, the authors of the study note.

Analysts explain the positive dynamics by the launch of the program of preferential mortgages in April at a rate of 6.5% per annum. Recall, until November 1, 2020, Russians can be granted mortgages with an appropriate rate of up to 3 million rubles, and in Moscow, Moscow Region, St. Petersburg and the Leningrad Region - up to 8 million rubles.

According to DOM.RF, in May, preferential mortgages accounted for about 20% of all housing loans. To date, within the framework of the program, banks have already issued 30.7 thousand loans worth 77.2 billion rubles.

The reduced rate allows the Russians to significantly save on interest on the loan, which makes the purchase of real estate more profitable. About this RT told investment strategist "BCS Premier" Alexander Bakhtin. 

“The program is most popular in Moscow and St. Petersburg, where traditionally a square meter is the most expensive. Under current conditions, in 2020, the total volume of all issued housing loans in Russia may exceed the indicators of 2019 and grow to 3.5 trillion rubles, ”Bakhtin explained. 

At the same time, the increased interest of Russians in housing lending is associated with a gradual weakening of quarantine measures. This point of view in a conversation with RT was expressed by the vice president of the International Academy of Mortgage and Real Estate, Irina Radchenko. According to her, in conditions of self-isolation, some buyers decided to postpone the purchase, because they did not know how long the non-working days would last. Moreover, at the moment, sales in the primary market are gradually returning to the level of early March, the expert noted.

“As consumers emerged from self-isolation, buyers began to realize pent-up demand. They understand that the situation is stabilizing, and are trying to invest their savings in more profitable assets, including real estate. Taking into account the policy of the Central Bank, which aims to gradually reduce the key rate, the volume of transactions in the real estate market will increase, ”predicts Radchenko.

According to the Bank of Russia, in April the average mortgage rate in Russia fell to 8.32% per annum. According to the government’s plans, according to the results of the year, the indicator should fall below 8%. However, experts interviewed by RT believe that this may happen earlier. In many ways, the situation will depend on the actions of the Central Bank.

Russian banks are closely monitoring the change in the key rate of the regulator and, on the basis of decisions taken by the Central Bank, independently determine the level of long-term credit rates, including mortgage ones. In April, the Central Bank lowered its key rate to a minimum of six years (up to 5.5% per annum) and may continue to decline in the near future.

“At the June meeting, the Bank of Russia may again reduce the key rate, which will prompt banks to adjust the level of long-term lending rates, including mortgage rates. As a result, in the fall, the average mortgage rate may fall to a historical minimum of 7.5% per annum, ”said Irina Radchenko.

Price Descent

According to experts, a further decrease in the mortgage rate will have a certain impact on the cost per square meter in the country. According to Alexander Bakhtin, amid the growing interest of Russians in new buildings due to the reduction in the rate, developers will begin to build more housing to cover the losses accumulated during the pandemic. 

“Such a scenario could lead to an oversupply in the market. As a result, according to the results of the year, real estate prices in Russia may fall on average by 10-15%. A more serious decline should not be expected due to the final transition of developers to the project financing system for housing construction, ”Bakhtin explained. 

Recall that from July 1, 2019, developers can no longer attract money from equity holders directly. Now citizens place their funds for the purchase of housing on the so-called escrow accounts. This is a special bank account for the safe conduct of transactions between companies and the public.

Money for the purchase of real estate is stored in the bank until the developer fully fulfills its obligations. So, for example, a construction company will be able to receive funds from interest holders only after the introduction of housing into operation. Performers themselves will carry out construction work at the expense of bank loans.

“The changes have led developers to increase costs. For this reason, even before the pandemic, the square meter rose by an average of 2%. However, at the time of self-isolation and a sharp decline in demand, housing prices began to decline, and in the future for some projects in small cities the price in the medium term may fall by about 20%. In large cities, the decline in price will be less - about 5%, ”concluded Irina Radchenko.