To go on maternity leave with ‘allowance’: if maternity capital for firstborn will spur mortgage

Tatarstan residents borrow 75,4bn rubles

The Central Bank made a preliminary assessment of the pace of granting mortgages in Tatarstan. The results turned out impressive: residents of the republic took out 38,900 home loans for 75,4 billion rubles (data from January to 1 December 2019). Moreover, the weighted average mortgage rate totalled 9,12% a year, the Tatarstan office of the Central Bank said. Over the year, it went down by 0,81 pp, or almost by 1%.

A gradual reduction of mortgage rates that was observed throughout 2019 led to growth in mortgage rates. According to the Central Bank’s data, the portfolio of mortgage loans in the republic amounted to 209,3 billion rubles, which is 17,5% more compared to last year’s analogous data (as of 1 December 2019).

“Lower inflation and softer monetary policy explain the growth in demand for mortgages, there is a reduction in mortgage rates,” the Central Bank’s experts explain.

The biggest fall in mortgage rates was in November. Then the weighted average mortgage rate decreased from 9,93% to 9,12%, that’s to say, by 0,81 pp. Moreover, it was lower than across Russia on average, by 0,07 pp (9,19% on average across Russia).

Despite the rise in mortgages granted, overdue payment risks were minimal. As the CB’s message reads, the mortgage payment discipline in Tatarstan as of 1 December 2019 was 0,65%, while a year ago this indicator was 0,7%. To compare, the average overdue payment across Russia reaches 2%.

Will Putin’s initiative stir up mortgage?

The president’s initiative to expand the programme of maternity capital this year can boost the demand for mortgages, representatives of the banking sector note. As practice shows, 697,000 people took advantage of maternity capital to improve their living conditions, and most of them invested money to build houses and purchase new flats, including taking out a mortgage. According to Manager of the republican office of the Russian Pension Fund Eduard Vafin, 16,200 state certificates were issued and 23,300 applications to spend maternity capital were approved in 2019. The programme of maternity capital will be expanded from this year. Families will receive 466,000 rubles for the first child. Compared to the last year, families will receive 13,600 rubles more, or by 3% more. Indexation affected all the families who had both all the money or part of it in the certificate by late last year. The payout to families with two children will increase to 616,000 rubles. In the future, the amount of maternity capital will annually be indexed. President Vladimir Putin claimed this in his address to the Federal Assembly.

However, bankers aren’t waiting for a big rise in the interest in mortgages. According to Vice President, Deputy Director of the Credit Business Department at Otkritie Bank Nina Kryuchkova, the share of mortgages in programmes with maternity capital as the first instalment granted in 2019 totals 2,54%. The biggest number of mortgages with maternity capital was granted in Moscow and Saint Petersburg, in cities with high salaries, as well as in Novosibirsk, Yekaterinburg, Tyumen and Volgograd. As it turned out, Tatarstan families with children don’t rush for a commercial mortgage, probably preferring the social one.

One’s money needs to be added to maternity capital

The average first instalment for a mortgage at Otkritie Bank in 2019 was 800,000 rubles, said Vice President of the bank Nina Kryuchkova. It is approximately a third of a loan compared to the market on average. Will the introduction of maternity capital for the firstborn lead to a rise in demand for mortgages from young families in 2020 and the next years? “Highly likely,” she notes.

“But one should understand that the amount of maternity capital in big cities, as a rule, isn’t enough for the first instalment, and clients anyway have to add their money.”

“If the share of maternity capital in the first instalment is 80%, it influences just the fact of granting a mortgage, not the rate. As you understand, a family doesn’t collect enough money to pay a 10% first instalment,” Senior Economist at Capital PF consultancy Yevgeny Nadorshin.

Maternity capital will attract those who didn’t consider a mortgage, while with additional stimulation they can enter this market.

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Maternity capital won’t reduce interest rate

The funding cost is the key factor that affects the mortgage rate, while maternity capital won’t reduce it, believes Pavel Samiyev, the deputy director of the Association of Financial Literacy Development, chairman of Opora Russia in financial markets.

“When rates decreased, the number of mortgages granted couldn’t grow more,” he supposes. “But new presidential initiatives and supporting programmes for young families won’t significantly influence rates,” Samiyev noted.

Also, this year the Central Bank cooled down the retail market by eliminating those who can carry additional risks. Mortgages with a zero or low first instalment have stopped being granted.

For young families, rates are subsidised by a bank — to 6% a year. In the address, the president wanted the banks to expand such programmes. “The more programmes of this kind the lower the rate, but this won’t happen thanks to maternity capital. The introduction of maternity capital in itself doesn’t favour a reduction in the rate,” Yevgeny Nadorshin is sure. In his opinion, these initiatives will help achieve one of the goals of the address — 5% growth of investments a year. There are few resources for this. And construction is one of them. It is not so much care of young families as a resource for growth by supporting the activity of young families.

Should one enter heated realty market?

There is a feeling that now it is the best time to give birth — the rates are reducing, maternity capital is at hand. Salaries don’t grow, and it is more profitable for a young woman to go on maternity leave than do a low-paid job. But Nadorshin warns: if young families take out a mortgage in these conditions, this can become a source of risk. A loan can be a heavy burden on the family budget if there are economic hardships in the country because of a fall in oil prices.