Elvira Nabiullina: ‘Preferential mortgages do not increase housing affordability’
The head of the Bank of Russia — on the slowdown in apartment price growth and the targeting of mortgage programmes
Housing prices in Russia will no longer grow at the same pace as it has been in the last two or three years, according to the Bank of Russia. The situation in the regions of the country will vary, said the head of the Central Bank, Elvira Nabiullina, in an interview with RIA Novosti. At the same time, preferential mortgages, according to her, should become targeted, since taxpayers who do not use these benefits pay for mass mortgages. Read the details in the material.
House prices will “vary from region to region”
The regulator expects a significant slowdown in housing price growth in Russia as a whole, but the situation will vary at the regional level, the head of the Bank of Russia, Elvira Nabiullina, said in an interview with RIA Novosti:
“We definitely expect a significant slowdown in the growth rate of housing prices in the whole country, because they were very high. If we look at the last two or three years, they cannot be explained by that prices have been rising at a lower rate for some time," the head of the Central Bank said. “But the picture is likely to vary from region to region, as the rise in prices in recent years has been different in different parts of the country.
In December, Kazan entered the ranking of Russian cities with the highest increase in apartment prices in 2023, Izvestia reports. The average cost per square metre of housing in the country increased by 9.9%. Apartment prices increased the most in Chelyabinsk (+33%). Omsk (+26.8%) and Yekaterinburg (+25.2%) also became the leaders. The capital of Tatarstan took the eighth place in the rating — apartments here have risen in price by an average of 18.4%. Besides, the top 10 cities included Rostov-on-Don (+24%), Volgograd and Krasnodar (+20.9% in both cities), Nizhny Novgorod (+19.7%), Krasnoyarsk (+19.5%), and Perm (+14.7%).
In 2023, the number of transactions in both the primary and secondary real estate markets increased in Tatarstan. Over 11 months of the year, the Federal Register for the republic registered about 23.5 thousand contracts for participation in shared-equity construction (DDU). The number of registered transfers of rights on the basis of purchase and sale agreements exceeded 219 thousand.
Head of the Central Bank: mortgage programmes should be targeted
Preferential mortgages in Russia should become targeted, Elvira Nabiullina is convinced. According to her, taxpayers who do not use these benefits pay for the mass payment:
“Other taxpayers who do not use these benefits pay for massive preferential programmes. Therefore, in my opinion, the programmes should be targeted, for example, family, rural, Far Eastern mortgages. They are aimed at solving those problems that cannot be solved by market methods," the head of the Bank of Russia said in an interview with RIA Novosti.
The Russian preferential mortgage programme for new buildings was extended at the end of the year until July 1, 2024. Now the government of the country is discussing changing its parameters. Other preferential mortgage programmes are also maintained: a family one, for IT specialists, and for the Far East.
Earlier it became known that starting this year, the Central Bank will have the right to restrict the issuance of mortgages to banks and microfinance organisations. A group of State Duma deputies and senators submitted the relevant bill to parliament. The restrictions may come into force on July 1, 2024.
The authors of the initiative stated that they want to prevent the growth of creditworthiness of the population and the accumulation of risks by financial institutions. The draft law assumes that the Bank of Russia will be able to set limits on the share of mortgage loans with a high level of risk. At the same time, the bill will not apply to car loans and mortgages secured by air and sea vessels, inland navigation vessels. This is due to the risks associated with rising housing prices and a possible decrease in the quality of mortgage servicing.
Currently, there is an increase in risks in the mortgage sector, according to the explanatory note to the document. Prices for new buildings exceed the cost of ready-made housing by 42%, and this can lead to difficulties in selling housing and fulfilling loan obligations. Besides, the share of mortgages issued to borrowers with a high level of debt burden is growing.
“What happened in different countries with the housing market is an important lesson for us”
The head of the Bank of Russia has repeatedly opposed mass preferential mortgages, noting that the gap between housing prices for “primary” and “secondary” has increased. In her opinion, this may serve as an indirect sign of overheating of the market, therefore, in order to avoid the risk of a bubble, it is necessary to develop targeted, rather than large-scale measures to support mortgages, she said in another interview.
Elvira Nabiullina stressed that the regulator stands for the balanced development of mortgages, otherwise the mortgage boom threatens a crisis, not an increase in housing affordability in Russia. The average term of a mortgage loan has increased from 18 years in 2020 to 25 years now, she noted:
“What happened in different countries with the housing market is an important lesson for us. If there is a boom in the housing market, then it is very likely that it can lead to a crisis. It is very important for us to avoid this, so we advocate the balanced development of mortgage lending," the head of the Central Bank said, adding that housing affordability should not be confused with mortgage affordability: “Because even if interest rates are low, but a person should take out more credit, since prices have increased as a result of massive preferential programmes, then this does not mean an increase in housing affordability.”
The volume of mortgage issuance in Russia in December 2023 increased by 8% compared to December of the previous year to 1.03 trillion rubles, the average size of a new mortgage loan reached a record 4.45 million rubles, the United Credit Bureau reported. According to Nabiullina, housing affordability is determined by several factors. First of all, household incomes should grow faster than apartment prices, construction efficiency should increase, and costs should decrease.
“And, of course, there should be moderate mortgage interest rates even without preferential programmes — we had them when inflation was at the target level. Then we began a fairly active mortgage development precisely because of the reduction in market rates," the head of the Bank of Russia stressed. “Preferential mortgages, if they lead to an increase in housing prices, do not increase its affordability. Even if the monthly payment has not increased, the total debt burden of the borrower is still growing.”
Starting from July 1, 2024, in addition to a preferential mortgage, the family mortgage terminates, with the exception of families with a disabled child if he was born before December 31, 2023.