Differentiation of mortgage rates depending on the region can lead to an increase in the cost of housing and will not help stimulate demand, said large developers interviewed by RBC.
The idea of differentiating mortgage rates depending on the region on Thursday, November 16, was discussed in State Duma, during the report of the head of the Central Bank Elvira Nabiullina on the main directions of the unified monetary policy. “The deputies propose, with regard to mortgages, to consider the possibility of its differentiation in relation to the average salary in the regions. Because our country is huge, salaries vary in the regions, but at the same time the mortgage rate, the loan rate – it is the same,” said State Duma Chairman Vyacheslav Volodin. — Yes, we have social issues, there are preferential mortgages, there are mortgages for the Far Eastern regions, there are preferential mortgages for residents living in villages. But, let’s say, Kostroma, Kostroma region, cities of the Kostroma region and Moscow. “Wages in Moscow differ several times from wages in Kostroma.” The massive mortgage program for new buildings has led to regional imbalances, Nabiullina agreed: a significant part of preferential mortgages are taken out in metropolitan centers, and investment housing is also purchased here. “And of course, we need to differentiate,” noted the head of the Central Bank.
The introduction of different mortgage rates will help stimulate housing construction, the Chairman of the Central Bank noted. “There are regions where very few mortgages are issued, and there are those where it is developed. And housing construction – for many construction companies it is very unprofitable to build in small cities, this is low profitability,” Nabiullina pointed out.
There are no clearly defined criteria for the program yet. The press service of the Ministry of Construction told RBC that the initiative has not yet been submitted to the ministry for consideration, and the government remains responsible for regulating mortgage programs Ministry of Finance. RBC sent a request to the press service of the Ministry of Finance.
How much do Russians pay for using a mortgage?
According to the Bank of Russia, as of October 1, the weighted average mortgage rate in Russia was 7.92% per annum (not only market programs were taken into account, but also preferential programs, the rates for which are subsidized from the budget).
The most widespread preferential programs – preferential mortgage and family – operate in all regions, the maximum rates for them are the same for all subjects and amount to 8 and 6%, respectively. Also in 2019, a separate program “Far Eastern Mortgage” was launched, which involves issuing loans at 2% for the purchase of housing in 11 regions of the Far Eastern Federal District. The maximum loan amount is 6 million rubles, but by the end of this year it will be increased to 9 million rubles.
What risks do market participants warn about?
“Targeted reductions in mortgage rates, as seen in the example of Far Eastern mortgages, can lead to an increase in the cost of housing, which potentially reduces its affordability,” Kirill Gurbanov, managing partner of Samolet Fintech, told RBC. If the cost of a new building doubles, a payment at a 2% rate may be comparable to a payment at an 8% rate. “The dynamics of mortgage rates over the past three years have shown that there is almost always potential for cheaper mortgages. The only question that remains open is how the value of real estate will change. If the price increase is uncontrolled, then the proposed measure will not bring the desired effect of making new housing more affordable,” says VSN Group CEO Yana Glazunova.
Differentiation of rates in itself only indirectly affects the affordability of housing, Mikhail Goldberg, head of the Dom.RF analytical center, told RBC. “The key factors here continue to be housing costs and incomes. Using the example of Moscow, we see how the high cost per square meter, despite higher salaries, makes buying an apartment in the capital one of the least affordable in the country,” the expert explained.
However, different mortgage rates are an effective tool for increasing construction volumes, Goldberg states. As an example, he cites the Far Eastern Mortgage program: “The growth rate of housing commissioning in the Far Eastern Federal District today is already higher than the national average. In other words, differentiation of rates can be used precisely as a targeted tool for the development of strategic regions of the country. In this context, high hopes are placed on the recently launched Arctic mortgage,” continues Goldberg. But he warns that the housing market must maintain a balance of supply and demand: “As practice shows, excessive stimulation of demand for a particular product, including apartments, leads to a rapid increase in prices,” the expert emphasized.
“To stimulate housing construction, it makes sense to develop targeted programs to support developers in certain regions,” says Gurbanov. “This could include subsidizing project finance rates, provided housing prices remain at market levels.”
“In my opinion, the breakdown of mortgage rates depending on the region will not be able to stimulate sales and, as a result, the growth of housing commissioning,” believes Yulia Arkhangelskaya, head of the mortgage lending department of the Mangazeya company. “Muscovites will not go to buy housing in other cities due to lower mortgage rates; at the same time, we will also lose the traffic of regional buyers to the capital, which today constitutes a significant part,” Arkhangelskaya warns.
If mortgage rates, especially preferential ones, increase significantly in those regions where salaries are slightly higher than others, this will not lead to stimulation of purchasing activity in other regions, but, on the contrary, will reduce demand everywhere, warns Irina, head of the mortgage development group of developer Neometry Kazantseva. “We are of the opinion that in order for people to want to buy an apartment in their home region, to want to stay and develop there, rather than move to a more economically developed region, changing mortgage rates is not enough: it is important to provide people with jobs, a decent income and a rich infrastructure in the region,” Kazantseva noted.
“Differentiation of mortgage rates by region is generally a sound idea, since the level of housing prices and wages varies greatly across Russia. An expensive mortgage may deprive residents of some regions of the opportunity to buy an apartment,” says Alexander Pakholenko, general director of OM Development. However, he emphasizes that he would maintain preferential mortgage programs and affordable mortgage rates throughout Russia, as this “stimulates demand and development of our industry.” For most comfort and economy class developers in the capital, up to 70-90% of sales come from their own or government preferential mortgage programs.
