From August 1 this year, the Bank of Russia will increase the amount of premiums to risk ratios for mortgage loans with an initial payment below 20% for banks in order to limit the risks of this type of lending, the press service of the regulator said.
“The new values of the allowances will range from 50 to 100 percentage points, depending on the value of the borrower’s debt burden and will be applied to loans provided from August 1, 2021,” the Central Bank said.
At the moment, depending on the debt burden (PDI) of citizens, that is, what share of their monthly income they spend on paying off debts, the premiums to the risk ratios range from 20 to 80 percentage points. At the same time, banks are increasing their loan portfolios by issuing loans with a low down payment, thereby increasing their vulnerability to possible shocks.
According to the Central Bank, if in the second quarter of last year the share of housing loans with an initial payment below 20% in the primary market was 24% of the total, then in the first quarter of this year the figure rose to 45%. In the secondary market, the indicator increased less significantly – from 30 to 33%.
The increase in markups should discourage banks from issuing mortgages with a low down payment. In addition, it is assumed that this step will accelerate the recovery of the accumulated buffer for such loans and ensure the resilience of credit institutions to possible negative scenarios. The regulator indicated that this measure is necessary, since, as of April 1, the annual growth of debt on the mortgage loan portfolio in rubles remains high – 23%.
In addition, the Central Bank warned that if the debt burden of Russians and real estate prices in the country continue to grow, in the second half of the year, it is likely that the issue of establishing risk ratios premiums for housing loans with a down payment of more than 20% and borrowers with high personal income tax will be considered. … So, in the first quarter of this year, almost a quarter of the total volume of mortgages provided to citizens fell on people who send more than 80% of their income to pay off debts.
The Central Bank decided to limit the issuance of mortgages with a low down payment against the backdrop of rising real estate prices in Russia, which began in the middle of last year. The fact is that to support the economy during the coronavirus pandemic, the regulator lowered the key rate to a historically low level of 4.25% per annum, as a result of which loan rates fell. In addition, in April 2020, the government launched a preferential program that allows you to get a mortgage in a new building at a fixed rate of no more than 6.5% per annum. This has led to an increase in demand for housing in the country.
The rise in real estate prices continued this year as well. In the first quarter, housing prices in the primary market increased by 17.6%, and in the secondary market by 13.6%, the Central Bank said, citing Rosstat data.