Ekaterina Ponomareva on the Prospects of Preferential Mortgages and the Housing Market

The fight for preferential mortgage is entering a new stage: banks ask for the previous size of subsidies to be returned to avoid losses, while the regulator is waiting for new authorities to be granted. With preferential mortgage being available, banks can extend loans at an interest rate below the market one, while the government subsidizes this difference. Following a decrease in subsidies in December 2023 fr om 2% to 1.5%, commissions were introduced in respect of outsider-developers and, consequently, some developers got a competitive advantage, while for others, without partner-banks, it became more difficult to sell apartments.

To stabilize the situation on the housing market, the VTB bank suggested that the size of subsidies for banks should be raised to 2.5% and such subsidies be made more targeted. According to the VTB plans, the targeting of mortgages is expected to reduce demand, slow down price rises and preserve the attractiveness of preferential mortgage both for banks and developers. However, the RF Ministry of Finance does not consider a return of the previous parameters of subsidizing banks when issuing mortgage loans. It is expected that a decrease in the number of mortgage loans to be extended in 2024 may slow down appreciation of prices for new housing and reduce housing prices on the secondary market. According to experts’ projections, in 2024 the sum of housing loans will decrease by one-third, though a fall can become even more dramatic: The State Duma is preparing to consider the draft law on granting the Bank of Russia the right to lim it banks’ issuing of mortgage loans from July 1, 2024. The abovementioned document was submitted for consideration to the State Duma a week earlier.

“Based on the results of revision of the terms and conditions of preferential mortgage loans, that is, an increase in the size of a down payment and decrease in the maximum size of a loan, in December 2023 banks expect a reduction of 30% to 50% in issuing such loans under preferential mortgage programs,” Ekaterina Ponomareva said.

“However, as in 2023 growth in physical volumes   and in value terms amounted to 90% and 100%, respectively, even the expected decrease will lead to a return to the level seen in 2022,” Ekaterina Ponomareva believes. At the same time, in May and October 2022 in response to growing bankruptcy-related risks the Bank of Russia revised the macroprudential limits for borrowers and banks. “However, it did not affect the volumes of issuing of preferential mortgage loans; only a short-term (up to a month) reduction of 10%-15% or an additional reduction of 1% year-on-year were observed. A similar effect can be expected in case of introduction of commissions for issuing preferential mortgage loans,” the expert believes.

According to Ekaterina Ponomareva, such short-term fluctuations will not affect the long-term dynamics of prices which are likely to keep growing on the back of overall price rises, depreciation of the Russian ruble exchange rate and the need to underpin financial sustainability of developers and ensure preferential mortgage programs’ profitability for banks. “In case of absence of substantial changes on the market based on the results of 2024 (the planned completion of preferential mortgage programs on July 1, 2024), appreciation of prices on the primary housing market is predicted within the range of the expected level of inflation, that is, by 5% to 7%,” Ekaterina Ponomareva notes.