Mortgages have exploded in Russia and the volume of housing loans has been doubling every two years for a decade. The government is keen to get people into their own homes and just launched a raft of new initiatives to make mortgages cheaper and more attractive than ever.
The total stock of mortgage debt topped RUB6 trillion in last quarter of 2018 and reached a total of RUB6.4 trillion ($97.4bn) as of the start of January. The stock has been growing steadily yet the share of mortgage debt as a percentage of GDP in Russia remains well below the levels in western Europe.
Over the last few years the government subsidised mortgage rates over 12% to encourage people to borrow. However, the solid management of the Central Bank of Russia (CBR) has seen both the cost of borrowing and inflation come down so that mortgages fell below 10% for the first time ever in 2018. Now President Vladimir Putin said in February he wants to see interest rates under 8% soon.
That will be made more difficult by the impending new US sanctions and Russia’s dependency on oil prices and the success of the harvest: after cutting rates continuously since the ruble’s crash at the end of 2014, the CBR ended its easing cycle and hiked rates twice at the end of last year in anticipation of more ruble volatility this year and as inflation started to creep up. The blended rate mortgage rate hit a record low of 9.4% in October 2018, but then ticked up to 10% in January 2019. Economists think that as inflation is supposed to ease in the second half of this year the CBR could go back to cutting rates again.
In the meantime the Kremlin has been dreaming up ways to make it easier to buy an apartment as part of Putin’s extensive package of social gifts he announced during his state of the nation speech in February that was designed to nip in the bud the growing social disgruntlement of the Russian citizens.
Among the measures is the 8% target rate (although this time round the government won’t subsidise mortgage rates again.) The state will also reduce property taxes on families with children. And a new draft law on mortgage holidays has been submitted to the State Duma that assumes a one-off period of six months during which payments are suspended if a person loses their job or is simply having difficulties making the monthly instalments.
The average mortgage duration is currently 206 months and the payment holidays represent 3% of that. Missed payments will increase the overall life of the mortgage, while lower interest rates could lift the blended rate. The Federal Assembly called for a mortgage rate of 8% by 2020 and CBR governor Elvira Nabiullina said at the end of February that this target is realistic. German Gref, the CEO of Russia’s dominant retail bank Sberbank, says that 8% mortgages may appear as soon as next year.
“Next year, I’m sure we will see 8% [mortgages],” Gref said during a conference call with investors on February 28. According to him, mortgage rates will fall by the end of this year, but whether it will be to 8% or 9% will ultimately depend on what happens to inflation.
And the whole business is gathering significant momentum. Of the entire stock of mortgages outstanding, half the total was taken out as mortgage contracts in just the last year – a record RUB3 trillion of deals were signed in 2018, itself a 49% increase on the year before.
The boom in housing credits is already feeding through to the construction business where mortgages now account for 40-65% in the sales of listed homebuilders.