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Time cheap mortgages passed

With the new year, banks may refuse housing loans with an initial payment less than 20% or raise for these borrowers the interest rate.

From 1 January 2019, the Central Bank decided to raise the risk weighting on housing loans with low initial payment (20%) from 150% to 200%. What this means for potential borrowers to understand “Rosbalt”.

What is a “risk factor” and what does it affect?

As explained by the Chairman of the Duma Committee on financial market, President of Association of regional banks Anatoly Aksakov, depending on the set of the CB coefficient banks form a reserve for the loan. So, if they saved 150% of the loan amount, will now have to put 200%.

“The money that a Bank reserves against risky loan, is not going away. When the customer repays the debt, they return to balance — the Bank loses nothing. But at the same time, these measures lead to a rise in the cost of the loan to the Bank and, ultimately, for the borrower,” — said Aksakov.

What will change for those who want to get a mortgage?

“Banks can either raise the requirements for initial payment to 20%, which satisfied the Central Bank, either to raise interest rates on such loans to compensate for their costs of formation of reserves”, — says a leading analyst on Bank ratings “Expert RA” Catherine Shurigina.

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According to her, now trend toward higher rates started in the mortgage market as a whole. So, until the end of the year housing loans may rise to 0.5-1% per annum. “Interest rates on loans with low initial contribution will grow a little more,” said Suraina.

“Banks are unlikely to completely abandon loans with an initial contribution of up to 20% of the price. They, too, need to earn. Most likely, they’ll just shift their increased costs to customers,” agreed Director of the Banking Institute HSE Vasily Solodkov.

For potential borrowers, this can only mean one thing — higher interest rates by 1-2%, the expert believes. According to Aksakov, the growth will be more than 2-3%.

“The volume of lending will decrease in a natural way: people simply will not agree to such conditions. The Central Bank thus decides its task and will reduce the share of unsecured loans,” — said Solodkov.

Why is it necessary?

The decision of the Central Bank experts attributed the increased popularity of home loans not backed by a substantial down payment. According to “Russian newspaper”, which refers to the information of Bank of Russia, last year the share of such loans rose from 6.8% to 44%. In the first half of this year, it was 40% of total issuance, said Shurigina also with reference to data of the Central Bank.

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“The problem is that we have lending is growing faster than incomes. All this leads to the fact that at some point there will be another crisis. To avoid or slow down the movement in this direction, the Central Bank increased the coefficient of risks,” — said Solodkov.

Therefore, the Bank is insured against the mortgage bubble, agreed Aksakov. “Life shows that if the initial payment is less than 20%, service such loans worse. Not investing in buying a home a substantial amount, people often stop paying on the loan, if there are any difficulties,” he said.

According to the analyst of “expert RA”, before these loans is also issued, but in smaller quantities. Many of the largest banks in the requirements for initial payment and was still at the level of 10-15%.

“In terms of stable housing prices and record low interest rates borrowers were in a hurry to realize pent-up demand and took out loans with the down payment, which they had. Hence the growth,” explained Shurygina.

However, she stressed that housing prices are rising yet not so noticeable, the rates are still in a comfortable range, so until the end of the year borrowers can still get a mortgage at good conditions.

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