Experts predict that the demand for primary housing will drop markedly
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From May 1st Central Bank will increase premiums to risk ratios for mortgage loans that are issued for the purchase of housing in new buildings under equity participation agreements. Does this mean that now we have to forget about low mortgage rates in the primary market?
What is it all about: risk ratios? These are restrictions that prevent banks from lending to risky borrowers. These borrowers include those who are highly likely to default on their debt. Higher premiums on risk ratios mean that banks will now have to hold more capital to make loans than before. Due to the increase in surcharges, it will simply be unprofitable for banks to work with risky borrowers, which means that they will either not be approved for a loan at all, or they will agree to issue it only at a higher interest rate.
Experts predict that the demand for primary housing will fall markedly after that. First of all, it will hit the developers. Indeed, thanks to mortgage loans, about 75 percent of all transactions with the “primary” are made. At the same time, if there is an excess of primary housing on the market, then developers, whether you like it or not, will have to win customers and introduce some more profitable offers.
Earlier, the government reported: last year a record number of housing was built in Russia. And even by Soviet standards. And this despite the sanctions and the pandemic. During the year, 102.7 million square meters of housing were commissioned. Of these, 45.5 million square meters are new buildings. According to Deputy Prime Minister Marat Khusnullin, last year was the best ever for the construction industry.
Why is the Central Bank introducing tightening? What’s the point?
The fact is that last year there were record low mortgage rates for the purchase of apartments in new buildings. This was due to the introduction of special mortgage programs. Including there were mortgage programs from the developer with near-zero rates. At the same time, banks began to impose fewer requirements on borrowers. All this was done in order to spur economic growth through housing construction. And it succeeded. At the same time, despite low mortgage rates, due to high demand, primary housing rose in price much faster than secondary housing. The average difference between the cost of primary and secondary housing was 30%. This is a huge gap.
In addition, the Central Bank came to the conclusion that the population of Russia turned out to be overly indebted. 50 percent of citizens who have taken various loans spend more than 80 percent of their income on payments on them. And these are capital risks. It is considered that the risk is high if this indicator exceeds 40%. And now it’s twice as big!
The problem is that in the event of force majeure, a person may stop paying the loan, which means that he will lose his mortgage housing. Here lies the risk not only for the citizens themselves, but also for banks. Here’s what happens in this case. If the borrower stops paying on the loan, then his mortgage apartment goes to the bank. This means that the bank, in order to win back the money, is forced to sell it. But this can be done only with great loss. Sometimes, the difference between the price at which the borrower bought an apartment and the price at which the bank sold it can be several million rubles. As a result, apartments appear on the bank’s balance sheet, which are not covered by the value of the pledge of the apartment itself.
It was in order to make mortgages in Russia less risky that the Central Bank made changes. In fact, the Central Bank now wants to eliminate subsidized mortgage programs (with rates from 0.1%). At the same time, mortgage growth may slow down, but it will be possible to avoid a price bubble in the real estate market, the growth in prices for new buildings will become more adequate, and the risks for citizens and banks will decrease.
