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Will the state extend preferential mortgages. Comment by Semyon Novoprudsky

The sharp increase in the key rate has once again made relevant the issue of the fate of government preferential mortgage programs. The effectiveness of developers, banks and these programs to support housing demand is diminishing, and the costs of maintaining them are becoming greater, the columnists emphasize.

Semyon Novoprudsky. Photo: Tatyana Frolova

Russian government immediately allotted An additional 95 billion rubles from its reserves to subsidize three of the four preferential state mortgage programs. Of this amount, 46 billion rubles will go to support the family mortgage program, 41 billion to subsidize preferential mortgages in new buildings and another approximately 8 billion rubles will go to Far Eastern mortgages. Without additional financial support from the government, the smallest of all state mortgage programs – the “IT mortgage” – will remain in place for now.

The government itself honestly explained the need to allocate money from the reserve fund for preferential mortgages. “The need for additional financing is related, inter alia, to an increase in the key rate of the Bank of Russia,” the press service of the Cabinet of Ministers said in a statement. The state has not yet decided to abandon preferential programs, but maintaining their rates in the current conditions is becoming more and more expensive.

The two most widespread state mortgage programs – “family mortgages” and mortgages with state support in new buildings – played an important role, first in saving developers, and then in housing lending in banks. “Family mortgage” appeared in Russia in 2018, mortgage with state support in new buildings – against the background of Covid quarantine in the spring of 2020. First and foremost, both of these programs helped developers most, not borrowers, because acted out During the period when the Bank of Russia’s key rate was continuously lowered for several years after its emergency increase to 17% in December 2014. And, accordingly, market mortgage rates decreased. There were times when these market rates came close to the preferential rates. But still, preferential programs should ideally have made housing more affordable for the main categories of potential buyers – young families.

after force promotion The key rate immediately rose from 9.5% to 20% in February 2022, preferential state programs no longer helped developers, but banks. In fact, it saved mortgage lending in Russia from a complete collapse in the spring and summer of last year.

As a result, a situation has arisen in which the dependence of banks and transactions in the housing market on preferential mortgages appears to be at a record high: in September 2023, under preferential state programs in the country issued Already at least half of all hostages. However, oddly enough, dropping these programs would not be a disaster for either the banks nor the real estate market.

Preferential mortgages confidently boosted real estate prices. At the same time, preferential programs did not ease the burden of mortgage repayments for Russians. The average lifetime of a housing loan has been continuously increasing during the years of preferential mortgages, and by the end of October 2023 it is already approx has reached 25 years.

The gap between preferential program rates and market rates became worrying after the key rate was raised to 15% in October 2023. For example, the average rate for a “family mortgage” is now Equal to 5.4% per annum. This is almost three times less than the main price. From January 1, 2023, the increased base rate for preferential mortgages in new buildings, valid until July 1, 2024, increased from 7% to 8%. But this is almost half of the main price. The minimum rate for “Far Eastern Mortgage” is 0.7% per annum for the entire term of the loan, and for “IT Mortgage” it is about 4%. But due to more stringent restrictions on the conditions of participation and not such a large objective demand, relatively few loans are issued under both these programs. Few people want to live in the Far East or are ready to take out a housing loan, just as not all employees of IT companies are lining up for their “professional” mortgage. In addition, preferential mortgages are unlikely to lure IT specialists who have moved to Russia – they certainly did not leave because they were unable to get a loan for housing.

Market mortgage rates are always close to the prime rate, but slightly higher. Now these rates in big banks are at the level of 16-18 percent. Moreover, a sharp reduction in the key rate is not expected in the near future. It is becoming more expensive for the state to cover the difference between market and preferential mortgage rates for banks.

In addition, the housing market situation has also fundamentally changed. Unlike what happened two or three years ago, there is no risk of developers going bankrupt on a large scale due to their inability to complete projects. On the contrary, now the main problem for developers is how to sell the housing that has been actively put into operation in recent years. At the same time, demand for housing on the secondary market beats record.

Real estate prices continued to rise almost without pause throughout Russia and certainly in the “hottest” markets. Even the most favorable mortgage will not make housing more affordable if the borrower still does not have enough income to pay off such a loan for several years. And we constantly have to borrow large amounts. After all, the price of the mortgage bill automatically increases with the average cost per square meter. At the same time, there are restrictions on the loan amount in preferential programs. So, if people want and are able to take a mortgage, they will take it at a higher market rate. And if they don’t have a solid income, a relatively cheap soft loan won’t help.

There is nothing significant in reducing the volume of mortgages issued in the event of banks abandoning preferential government programs or tightening their conditions. At the end of 2023, Russian banks will already be can do Get a record profit of almost 3 trillion rubles. And the mortgage portfolios of the big banks are tightly packed.

So already in the second half of 2024, the government may have to decide on the merits of preferential mortgages: maintaining it, tightening the conditions and increasing government financial support, or cutting these programs. Doping or euthanasia: there is no other way.

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