Soaring housing subsidies threaten to turn into financial bubble
There is a surge in demand for market and prime mortgages in the country. This is evidenced by the latest data from the Bank of Russia. The issuance of mortgage loans on market terms in March increased by 30% compared to February, and under preferential programs growth amounted to 40%. In general, mortgage growth rates have approached pre-crisis levels. However, independent experts see such rapid growth as a source of risk of inflating a financial bubble. After all, the rapid growth of mortgage lending takes place against the background of an economic recession that has not yet been overcome in the country and a decline in the real incomes of the population. Will people who have voluntarily taken on the yoke of credit for years be able to pay their debts?
In March, Russian banks accelerated the growth of their mortgage portfolio to 2.1% from 1.5% in February, broadly in line with the average monthly rate for 2021 (+2.3%). This is stated in the review of the Central Bank of the Russian Federation, devoted to the dynamics of the banking sector.
According to analysts, the issuance of mortgages in the market in March increased by 30% – up to 277 billion rubles. (in February it was 213 billion rubles). The issuance of preferential loans increased by 40% – up to 293 billion rubles. (from 209 billion rubles in February).
The most popular program in March was the family mortgage. Emissions under it increased by 42% – up to 142 billion rubles, which accounted for about half of all emissions under state programs. The issue of “preferential mortgage” also increased – by 32%, to 119 billion rubles. In addition, they were supported by the “preferential developer mortgage” programs combined with this one, according to Central Bank documents.
What caused such rapid growth in home loans in March? Artem Deev, Head of Analytics at AMarkets, in a conversation with The Eastern Herald, named three reasons for what is happening. The first is a general improvement in consumer sentiment (they are also recorded by the Central Bank and Rosstat). That is to say that the various shocks of last year for the population are now smoothed out and are not perceived as cases of force majeure. Against this background, overall consumer demand is increasing – which is also confirmed by Central Bank data on the increase in consumer wallet.
Second reason: the growth of the dollar in March, because of which citizens again preferred to invest in real estate to protect their existing funds. “Although investment demand remains under pressure, some mortgages are issued for such objects,” said the analyst.
And the third reason for the growth in mortgages, he said, is that consumers are afraid of an increase in interest rates on loans. “It is no coincidence that Central Bank data indicates that special preferential programs are very popular with borrowers,” notes Deev.
But the question arises: won’t such a sharp increase in mortgages lead to a new financial bubble in the market? “The Central Bank announced in February that it would fight against the programs of developers who sell real estate at extremely low rates (around 0%)”, recalls Ivan Samoylenko, managing partner of the B&C agency, “since these programs are capable of creating a bubble in the mortgage market and are in fact not as cheap as the promoters claim.Then, already in March, the regulator set the deadlines for these programs to cease to exist – from the 1st June 2023. Also, with the onset of summer, the Central Bank is tightening risk ratios for borrowers, so the ability to take out a mortgage will decrease for many.
It is quite possible, according to the expert, that this news led to the fact that people began to actively take real estate on credit – they fear that such an opportunity will come later. “Because there are no longer any real reasons for such growth: prices have risen unjustifiably (twice in two years), and the real disposable incomes of citizens, to put it mildly, have not not increased at the same rate,” continues Samoylenko.
He notes that demand for mortgage loans in 2020-2022 was stimulated by a preferential government program (first at 6% per year, then at 7%), while more than half of the country’s loans during this period were issued on preferential mortgages. However, in this segment (beneficial programs) there is a drop compared to the peak of 2021, so the growth recorded is still very far from the records. “It’s more of a reaction to negative expectations: the Russians are trying to buy real estate at low rates when they are,” concludes The Eastern Herald’s interlocutor.
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