The head of the Central Bank Elvira Nabiullina spoke about the future of mortgages recently during the “government hour” in the State Duma. Addressing her next question, State Duma Speaker Vladislav Volodin noted that with the same preferential programs, “the salary in Moscow differs several times from the salary in Kostroma.” Indeed, preferential mortgage rates should be differentiated depending on the region of issue, Nabiullina agreed. Accordingly, mortgage interest rates are required to be differentiated based on how much people earn in the province. Meanwhile, Russia does not yet have a mechanism that will allow this quite sensible idea to be implemented.
“We are for targeted mortgages. The fact that we have a massive program (we are talking about mortgages for new buildings at 8% – “MK”) has led to regional imbalances – a significant part of preferential mortgages are taken out in metropolitan centers, and investment housing is also bought here,” said Elvira Nabiullina at the “government hour” in the State Duma. “I think that we will need to discuss with the government how to differentiate – the income level of the population may be one of the criteria.”
In addition, the chairman of the Central Bank added, it is necessary to take into account the level of mortgage penetration: there are regions where very little of it is issued, and there are those where it is developed. Plus, for many construction companies it is very unprofitable to build in small cities, “it is low profitability.”
Today, according to the Central Bank, the weighted average mortgage rate is 7.92% per annum. The highest rates were recorded in the Chechen Republic (11.16%), Ingushetia (9.79%), Karachay-Cherkess Republic (9.7%) and Kemerovo region (9.07%). The lowest are in Yakutia (6.11%) and the Amur region (6.38%). As for mass preferential programs – preferential and family mortgages – they operate in all regions of the Russian Federation, and the marginal rates for them are the same for all subjects – 8% and 6%, respectively. The country has also launched a Far Eastern mortgage program at a rate of up to 2% per annum for 11 regions of the Far Eastern Federal District.
Meanwhile, the issue itself was raised back in 2021 in the Federation Council. Nabiullina generally supported the idea, but suggested first introducing the parameters by which the rate would be calculated. Which in the end was not done. Then, unlike the current situation, criteria such as the average level of salaries, as well as the prevalence of preferential mortgages in the region, were not discussed.
“In general, the very idea of a differentiated rate is quite sound,” says Valery Tumin, director of markets for Russia and the CIS at fam Properties. – The program needs to be adjusted: many borrowers used it for investment or speculative purposes, whereas it was originally intended to improve the living conditions of the population. This situation, coupled with the growing spread (interest difference – “MK”) between market and preferential mortgages, led to an acceleration of prices in the housing market to unaffordable levels. At the same time, Nabiullina is right: it is important to first work out differentiation criteria that will fully take into account the needs of both borrowers and developers.”
In addition, it is possible, simultaneously with preferential mortgages, to issue subsidies for the construction of new housing in certain regions. In Tumin’s opinion, this approach will help stimulate housing construction in regions of the Russian Federation that are unpopular for development – in the Arctic, the Far East, and the North Caucasus.
“We must understand: we are talking about differentiation not of the rate itself (which is set by banks on the basis of a single rate of the Central Bank), but of the amount of its subsidization by the state,” notes vice-president of the Russian Guild of Realtors Konstantin Aprelev. – In addition, we need to understand the concept of “targeted nature”, understand how this targeting, aimed at certain categories of citizens (families with children, military, doctors, teachers, IT specialists, village residents), is consistent with the regional principle. Today, regional preferential mortgages for new buildings are partially implemented in the Far North and Far East. But there it is not targeted. Accordingly, the question arises: what relation will the planned regional subsidies have to existing targeted programs? Or will they live their lives independently of each other? I don’t have an answer yet.”
In addition, when they say that it is necessary to take into account the income of the local population, they forget about the following: real estate prices have, firstly, a purely market nature, and secondly, a strict regional link. And if we now make the mortgage rate too low for some constituent entities of the Russian Federation, we will inevitably see an increase in apartment prices there. To prevent this from happening, you need to look at such a criterion as the housing affordability coefficient: how many months or years it will take a family to buy an apartment, taking into account annual income and tax deductions. It is clear, Aprelev argues, that developing long-term mortgage programs now based on this coefficient will not be entirely objective.
Why? But because a mortgage loan is taken out for 30 years, and the degree of housing affordability can change significantly in the region in two or three years. It is also unclear whether there will be enough money in the budget to fulfill all the state’s obligations under preferential mortgage programs for 30 years. People need to understand that when they take out a home loan from a bank, it is not a fact that the rate of 6% or 7% will remain for so long. Rather, the rate will be floating.
“As a result, a story similar to the events of Covid 2020 may repeat itself: then an ultra-low mortgage rate was introduced for the entire primary market,” says Aprelev. “We received neither targeting nor regional differentiation, and today this mechanism that drives up prices in the provinces has not gone away. The idea voiced today has the right to life, but ideas are only good when there is the appropriate tools.”
According to Polina Gusyatnikova, senior managing partner of the law firm PG Partners, regional differentiation of rates on preferential mortgages does not pose any problems from a legal point of view. But the question is – why is this necessary? After all, interest payments will still depend on the cost per square meter and the size of the loan. It is clear that in Moscow and, say, in Penza these will be fundamentally different amounts. At the same rates, a resident of the capital, whose income is a priori higher, will still pay more than a resident of a region with a lower cost of housing.