The abrupt change in the exchange rate of the ruble against stable currencies, the dollar and the euro, became the basis for a tight monetary policy by the Central Bank of Russia, and provoked a panic in the lending market. The sharp increase and subsequent decline in quotations due to political factors that are difficult to predict caused serious difficulties in compiling mortgage rate forecasts for 2022 in an expert environment. But the situation is gradually clearing up, a fragile balance has emerged in the economic system.
Let’s consider what factors influence the key and, as a result, the mortgage rate, and what borrowers can expect under the current conditions. Will it reduced mortgage rates in 2022and how much?
Changes in mortgage rates over the past six months
Russians have become accustomed to relatively cheap mortgages over the years. In recent years, the rate has been 8%, and on preferential mortgages it has not exceeded 5-7%, and many developers have said that this is a lot.
What is the mortgage rate now, in 2022? Today, state-supported mortgages are issued in banks with state participation at 9%, some banks issue at 8.7%. The rate fell to this level after the rise to 12. Experts are unanimous, the maximum limit that the Russians are able to overcome is 15%. Therefore, everyone expects from the government and the Central Bank an answer to a naturally arising question: Will there be a mortgage rate cut in 2022?and how much.
While in the capital at such interest you can get 12 million, in the regions no more than 6. But now preferential mortgages can be combined with a market one, that is, part of the funds to borrow at preferential interest, and part under commercial. But, despite all the measures taken by the government, experts do not expect a boom in the mortgage market. Even despite expectations of a key rate cut, forecasts remain pessimistic. Real incomes of the population are declining, purchasing power is falling, which means that there are no grounds for an increase in demand.
How is the mortgage rate related to the Central Bank rate?
The key rate is the percentage at which the Central Bank lends to commercial banks when they need money. It is a reference point for credit institutions, the government of the country and the population, showing how much borrowed funds will cost in the future. As soon as the Central Bank published a release on changes in the key rate, experts expect mortgage interest rates to fall and other loans.
Commercial banks can set the maximum interest on a loan themselves, focusing on the policy of the Central Bank and competition in the loan market. The minimum is limited by profitability.
If it is required to stimulate demand for real estate and other economic activity, the key rate may be lowered by the Central Bank. If commercial banks want to attract more customers, increase the demand for loans, they lower the interest rate at the expense of their profits.
The key rate was introduced in the pre-crisis year of 2013. In the first year, it was 5.5%, gradually the figure grew, increasing, first to 7, then 7.5, 9.5, 10.5, periodically jumping up to 15-17%. Everything changed on February 28, the rate was sharply raised from 10.5 to 20% due to the geopolitical crisis, such a harsh measure buried the lending market under it. Subsequently, the Central Bank lowered the rate to 17% and then to 14%. At the same time, experts expect the downward correction to continue. The head of the regulator, Elvira Nabiullina, also gave her commentary forecast: this year the key rate will be in the range of 12.5-14%.
Under the new conditions, individual institutions, for example, VTB, continued to issue loans, raising the rate to 15.3 or more. Maintaining preferential mortgages at the level of up to 5.75%. But most banks have taken a wait-and-see attitude. Formally, loans continued to be issued at 12-16.5, and a further reduction was announced. But the term for consideration of the application is 30 days, and there are no sufficient statistics to understand how tough the conditions for extradition have been. Later, the key rate was lowered, first to 17, then to 14%.
Preferential mortgages appeared only in 2019. The rate was 6.5%. The geopolitical crisis of 2022 has made its own adjustments. After a radical increase in the key rate, the market froze in anticipation of government action. The authorities decided to subsidize the rate on mortgage loans to certain categories of citizens up to 12%. Later, when the key rate was reduced to 9%. Family mortgages are subsidized up to 6%.
In practice, banks, competing with each other for customers and government money, may set a lower percentage. Typically, the rate is reduced by credit institutions by 0.3-0.5%. For large amounts, this is quite noticeable. In addition, on May 18, the government decided to increase the amount of loans for preferential mortgages to 30 million rubles, for families – up to 15 million. But there is an important nuance here. The amount of the preferential loan has not changed, it will still be 12 million for the capital, 6 for the regions. And additional funds can be attracted at market interest.
Mortgage terms now
Loan terms vary greatly from bank to bank. As of May 19, on the most favorable terms without hidden fees, mortgage loans are issued by banks with state participation. Thus, Sberbank offers loans for housing at 13.9% per annum, subject to an initial payment of 20%. The commission for primary and secondary does not differ. You can get money cheaper only within the framework of a preferential mortgage subsidized by the state. Mortgages with state support are issued at 8.7%, family – at 5.7%. But the down payment in this case is 15%.
VTB applies the same percentage for the main category of borrowers. But families with children can get money at 4.7%. The bank is also working with a preferential program for issuing loans to specialists of IT companies. The percentage is similar – 4.7 per annum. Gazprombank also issues loans for the purchase of housing at 13.9%, but preferential mortgages are issued here on more favorable terms – 8.5% and 5.5%.
The interest offered by these credit institutions cannot be called reasonable. Since usually commercial banks issue loans at a slightly higher percentage than the one under which they take money from the Central Bank. And now, with a key rate of 14%, borrowers receive money by 0.10% less. This means that both Sberbank and VTB have the opportunity to raise cheap funds from somewhere. The source of such funds can be deposits that are issued at 9-12%, as well as support from the state of the bank itself.
Interest in banks without state participation is usually higher. Thus, Alfabank credits the purchase or construction of housing at a higher percentage, at 14.9. A preferential mortgage is issued on terms similar to those offered by Sberbank. Uralsib issues funds under the mortgage program at 14.79, promising to approve the loan under two documents.
Russian Standard Bank does not make publicly available lending conditions. Potential borrowers are invited to leave an application, in response to which the institution will send an individual commercial offer. On the one hand, this approach allows you to bargain, on the other hand, it carries the risk of hidden commissions and payments, since the mechanism is as opaque as possible.
As you can see, the conditions are almost the same everywhere. This suggests, among other things, that the government, seeking to stabilize the situation in the economy, regulates the process not only by market methods, but also uses government exhortations. The largest bankers are collected and oriented to support the construction industry. There is nothing wrong with this approach, usually, financial institutions are ready to meet halfway in difficult situations by the state or from the funds of companies with state participation.
The rates of commercial banks are more economically justified. Since they exceed the value of the key rate of the Central Bank. But the deposit policy of different institutions is different. But it is more an indicator of the need for cash and market competition than the actions of the regulator. Although the interest rate at which the Central Bank of the Russian Federation takes money from commercial banks also plays a certain stimulating role.
What to expect after the next meeting?
The next meeting of the Board of Directors of the Central Bank on the key rate should be held on June 10, 2022. Experts predict further reduction of the key rate. Whether the regulator will decide to reduce the indicator immediately by 2-2.5 points, or whether there will be a smooth correction is still unclear. In any case, the actions of the regulator give grounds for predicted mortgage rate cuts in 2022.
However, in order for banks to actually lower the mortgage interest rate, it is necessary not only to reduce the key rate by the regulator, but also economic stability, which makes it possible to predict the development of the situation in the future. Uncertainty about the future leads to the fact that additional risks are included in the payment for a mortgage loan. With minimal doubts about solvency, an increased percentage is applied to the borrower, or a loan is simply refused.
In the current conditions, much will depend on the measures taken by the state to stabilize the situation in the economy as a whole, as well as on the root cause – the outcome of the military conflict. If the negotiations are successful and peace comes, stabilization can be expected, even in the face of a sanctions confrontation.
Reducing the key rate from 17% to 14% will also allow banks to provide mortgage loans at a lower interest rate, but this is still quite a lot. A significant part of those who yesterday planned to buy an apartment on credit will not be able to do this at such a cost of borrowed money. However, the planned gradual decrease in the indicator during the year to 12.5% gives hope that credit programs will still work at full capacity. According to many representatives of the expert community, the psychological barrier at which Russians refuse to take loans, even if they have the opportunity, is 15%.
The materials presented in this section do not constitute individual investment advice.