The relatively young Russian mortgage market developed rapidly in 2020, all thanks to the coronavirus. The country's authorities have launched mortgages with a subsidized rate to support demand for housing and prevent failure in the construction industry amid the spread of COVID-19. The trick was a success, but now Russia may be facing a mortgage crisis. In recent months, experts and even some officials have repeatedly stated the risk of its development. At the same time, representatives of various government agencies began to actively deny this possibility. Whether this is a psychological defense mechanism, when the subject refuses to admit the existence of a problem, or a truly strong belief in the stability of the housing lending market, is not yet clear. Debt madness, lessons from the American crisis and the elusive mortgage bubble - in the material of Lenta.ru.
Mortgage: definition
Mortgage is a variant of collateral for real estate in which the housing remains the property of the borrower with the right of the lender to sell it in the event of the first failure to fulfill obligations under the contract.
Mortgages are regulated by Law No. 102-FZ of July 17, 1998, which contains detailed information about the rules for granting a mortgage loan and the obligations of both parties. The article also provides a detailed definition of a mortgage agreement. According to it, the mortgage provides:
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purchase of a residential building or apartment constituting separate real estate;
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construction or reconstruction of a residential building;
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acquisition of joint ownership of premises;
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acquisition of ownership of a land plot or part thereof;
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acquisition of a share in joint ownership of a residential building or apartment.
It follows that with the help of a mortgage you can not only buy a finished apartment or house, but also finance the construction of a house/apartment or buy a plot of land.
Advice for borrowers
It is very difficult to get approval for a mortgage without official income. Therefore, check out the recommendations that will help you get a positive answer:
- try to make as much of a down payment as possible. The higher it is, the stronger the bank’s loyalty. The easiest way to get approval is with an PV of more than 50%;
- close all existing loans and debts, especially credit cards;
- initially consider the offer of the bank through which you receive your salary, or in which you have ever held a deposit or taken out a loan;
- Don’t lie about your place of work and salary, everything will be checked. The declared income must be objective.
If you have a negative credit history, it is unlikely that you will be able to get a mortgage without official employment. Even borrowers with certificates are denied in such circumstances.
Mortgage terms
The mortgage lending segment is characterized by significant flexibility and the ability to select loan repayment terms taking into account the individual situation of the borrower, including his creditworthiness. Basic mortgage parameters:
- Loan terms. In the case of mortgage loans, it differs significantly from the terms that are available, for example, for most consumer loans. The long loan term - up to 30 years - allows you to break down monthly payments into small amounts, which opens up the possibility of purchasing a home for borrowers with relatively low creditworthiness.
- Installment type. To repay a mortgage, two installment plans are available: equal payments, in which the borrower pays payments of the same size throughout the entire loan term, or decreasing payments. In the latter case, contributions in the first period increase and then decrease, which reduces the financial burden before full repayment of the loan, but requires higher creditworthiness due to the greater burden on the budget in the first period.
- Interest rate. A variable interest rate may be applied, the size of which depends on the bank’s margin specified in the agreement and the lending interest rate established by the Central Bank of the Russian Federation. The fixed interest rate remains unchanged throughout the loan term and does not depend on changes in the key rate. One of the biggest advantages of a mortgage loan is its low interest rate compared to other loan products. This is mainly due to the fact that the financed housing also acts as collateral for the obligations. Therefore, potential losses in case of non-repayment of a loan with a mortgage are lower than, for example, with consumer lending without collateral. Alfa-Bank offers mortgage loans with an interest rate of 4.69% per annum with the possibility of reducing the base rate: - if real estate is purchased from a key partner of Alfa Bank; — if real estate is purchased from an exclusive partner of Alfa-Bank; — for salary clients and A-Private clients; — when signing a loan agreement within 30 calendar days from the date of approval of the application.
The bank may increase the rate if the loan is issued only with a passport, as well as if the borrower refuses life and title insurance, or if the object of financing is a residential building with a plot.
How will we give back?
According to the international rating agency Moody's, the total number of mortgage borrowers in Russia in the fall of 2020 reached 7-10 million people. One could rejoice at the development of housing lending, but mortgage debt is growing against the backdrop of a clear decline in household incomes. Back in May, it became known that after the start of restrictive measures due to the pandemic, the salaries of half of the citizens decreased. Rosstat calculated that in the second quarter of 2021, household incomes fell by 8 percent after growing by 1.2 percent in the first quarter. In the first half of the year, the figure fell by 3.7 percent. It is expected that by the end of 2020 the decline will be 3 percent.
The total number of mortgage borrowers in Russia in the fall of 2021 reached 7-10 million people
In previous years, citizens also clearly did not shovel money: real disposable income fell continuously from 2014 to 2017 against the backdrop of a protracted crisis. Near-zero growth in the indicator was noted in 2021 (plus 0.1 percent). At the end of 2019, the income of Russians increased by 1 percent in annual terms. All the growth was obviously “eaten up” by the coronavirus and its consequences.
The logical question - how people will repay their debts to bankers - worries many experts. Among the officials, Deputy Minister of Finance Alexey Moiseev was the first to speak about the danger of expanding the preferential mortgage program. It. Moiseev pointed to the growing debt burden ratio (DBR) of borrowers, saying that approximately 40 percent of Russians cannot afford a home loan even at 0 percent.
Photo: Valery Melnikov / RIA Novosti
“The real disposable income of Russian citizens has been going down since 2014, while the issuance of mortgages is growing (as are ruble prices for real estate). The perfect combination for the mortgage crisis. <…> There has not yet been a mortgage crisis in Russia. In 1998, there were practically no mortgages; in 2008, there was only a light version (“currency mortgages”). But there is a first time for everything,” wrote economist, associate professor at RANEPA Sergei Khestanov on his Facebook page on September 30.
Two weeks later, he identified the main catalyst for the development of the mortgage crisis in Russia - the increase in the number and proportion of borrowers with low financial capabilities. Khestanov said that by now the vast majority of people who planned to buy real estate with a mortgage have already done so. “Preferential mortgages encourage those who were not planning to do so before to buy a home,” he emphasized. According to the economist, housing loans have now become available to people with low incomes. Many of them will not be able to make payments regularly in the future.
A few days later, the Central Bank recalled the falling income of Russian mortgage holders. Deputy Chairman of the bank Olga Polyakova said that it is necessary to take a very balanced approach to the growth of the debt burden of individuals. Despite all the warnings, the preferential mortgage program was extended until July 1, 2021 - a corresponding decree was signed by Prime Minister Mikhail Mishustin.
The Russian government may need to do something to prevent a bubble from forming.
Scott Johnson, Bloomberg economics expert
It is interesting that the Russian authorities were warned about the need to take measures to avoid a housing credit failure not only by domestic but also foreign experts, in particular, the representative of the United States, the “creator” of the largest mortgage crisis in the history of mankind. American Bloomberg economics expert Scott Johnson softly stated that Russia “may need to do something to prevent the formation of a “bubble” (mortgage bubble - approx. Lenta.ru
»)».
How does a mortgage work?
The mechanism of a mortgage loan is somewhat more complicated than, for example, consumer loans. It is necessary to take into account a lengthy verification procedure (up to several months), during which both the borrower and the financed property are verified. The key point is determining the real value of the property, which is the task of the appraiser preparing a report for the bank. After verification, the bank issues a preliminary decision, which may also indicate the conditions that must be met to obtain a mortgage. When these conditions are met, after signing the notarial deed (and fulfilling additional conditions, if provided), the loan agreement is signed.
Most common reasons for refusal
The main reasons for refusal to obtain a mortgage loan can be identified:
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Non-compliance with requirements - insufficient income, experience, inappropriate age, and so on.
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Damaged credit history. Old loans are overdue for more than three months, litigation with banking organizations.
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Providing false information about yourself, as well as fake documents. This also includes incorrectly completed documentation, such as errors in income certificates.
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Unpaid debts on traffic police fines or taxes. This is a fairly common reason for refusal.
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High credit load - the presence of open credit cards, existing consumer loans, etc.
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Having a criminal record.
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Resubmission of an application to an organization that previously refused.
Often they are refused because some documents are missing or the credit manager could not verify that the person really works in the specified place.
An initial fee
The process of granting a mortgage has its own characteristics not only formally, but also financially. The borrower must pay a down payment, the minimum amount of which depends on the policy of a particular bank. The average down payment is 20%, but can be as high as 40%. Your own contribution looks somewhat different in the case of a loan for building a house. It may include, among other things, the cost of the building site on which the property will be built, as well as other expenses incurred by the borrower for this purpose (for example, project costs or building materials purchased independently). Alfa-Bank offers mortgage loans with a down payment starting from 10%, depending on loan conditions.
Which apartment is better for a student to buy?
If a student wants to take out a mortgage, then it is best to think about choosing an apartment in advance.
While you don’t have children, or your child is just growing up, you should think about purchasing a studio and a one-room apartment. Despite the fact that their price per square meter is higher compared to a two- or three-room apartment, they are more affordable.
In order not to overpay interest, it is worth making a down payment for a small apartment and paying off the loan faster. In a few years, the liquidity of the apartment may increase along with the demand for real estate, as, for example, was the case in 2021.
Therefore, you should not immediately look at large apartments. In the future, you will be able to save up and buy a three-room apartment yourself by selling the studio.
Thus, think about how not to take out a mortgage as a student, but to get around without a loan when buying real estate.
Insurance
Mortgage costs often extend beyond just the monthly payment. Different types of insurance also play a significant role: compulsory and voluntary. The most important of them:
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life insurance - usually has a voluntary nature, but when issued, it allows the bank to receive compensation under the insurance policy in the event of the borrower’s death before the loan is repaid;
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insurance of real estate against loss and damage - is mandatory, being a guarantee for the bank that, if necessary, the object of the contract will retain its liquidity;
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Unemployment and disability insurance—borrowers with low creditworthiness or those working in certain industries may sometimes need to take out additional insurance.
Alfa-Bank offers different insurance options when taking out a mortgage loan, depending on the type and status of the property.
Types of mortgage
There are several types of mortgage loans aimed at certain categories of clients. Alfa-Bank offers the following mortgage lending programs:
- Mortgage for housing in a new building: - interest rate - 8.39% per annum; — loan amount — from 600,000 to 50,000,000 rubles; — loan term — up to 30 years; — down payment — from 10%.
- Mortgage for secondary housing: - interest rate - 8.09% per annum; — loan amount — from 600,000 to 50,000,000 rubles; — loan term — up to 30 years; — down payment — from 15%.
- Mortgage with state support: - interest rate - 5.79% per annum; — loan amount — up to 50,000,000 rubles; — loan term — up to 30 years; — down payment — from 10%.
At Alfa-Bank, you can use maternity capital as a down payment to purchase housing in the primary and secondary markets under the Family Mortgage program:
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interest rate - from 4.69% per annum;
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loan amount - up to 12 million rubles in Moscow and Moscow Region, St. Petersburg and Leningrad Region, up to 6 million rubles in other regions of the Russian Federation;
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loan term - up to 30 years;
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down payment - from 15%.
You can clarify the terms of mortgage lending for one of the programs by phone or through the online chat form on the Alfa-Bank website.
Who is not eligible for a housing loan?
The lower the interest rates, the stricter the requirements for the borrower. For example, getting a loan to buy real estate is difficult for those who make a small amount as a down payment. Representatives of small and medium-sized businesses engaged in tourism, HoReCa, and entertainment are often denied loans, since they belong to the riskiest category of borrowers. The situation is similar with self-employed citizens and individual entrepreneurs.
Under what conditions is a mortgage not approved?
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there is no permanent income or there is no way to document it;
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age less than 21 years or more than 65 years;
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there are debts on other loans, alimony, unpaid fines, penalties for late utility or tax payments.
