Prospects for residential mortgage lending for 2011

Recommendation points

• Reduced interest and other surprises
• Bankers give the go-ahead …
• Down payment on a mortgage
• Mortgage Demand
• What to expect from 2011

The general revival of the macroeconomic situation in Russia in 2010 led to the stabilization of housing prices and the revival of mortgages as the main component of lending when buying real estate.

If the situation with mortgages in 2008 and 2009 could be briefly described with a winged movie quote: “The patient is more likely dead than alive …”, then 2010 brought hope for the “resuscitation” of the mortgage, and at a rather rapid pace, and with a good prospect for full recovery.

Reduced interest and other surprises

The decline in interest rates on newly issued mortgage loans has become the main event for attracting new borrowers. According to a survey conducted by LEVADA Center (November 2010), the most defining characteristic when opening a mortgage for 35% of respondents was precisely the low interest rate. The second and third places were taken by the loan term (31%) and the size of the first installment (29.5%).

The first organization that announced back in February 2010 of a decrease in mortgage interest rates was the Agency for Housing Mortgage Lending (AHML), which announced the appearance in its range of credit products at 9% per annum (Novostroyka, etc.).

In April, such an iconic heavyweight of the Russian financial system as Sberbank announced a rate cut. Under the loan programs “Mortgage Standard” and “Mortgage +” provided by Sberbank, rates were reduced three times over the year. According to N. Karaseva, head of the retail lending department at Sberbank, “The minimum rate on ruble loans at the end of the year is 9.5%”. True, such a minimum is available only for loans for a period not exceeding 10 years and only for corporate clients of Sberbank, but also for other clients not included in this category, interest on Sberbank mortgage loans has dropped quite significantly from 2009.

The decrease in interest rates mainly affected the ruble mortgage loans.

Commercial banks also had to decide to cut rates on mortgage loans. For example, Raiffeisenbank lowered interest rates three times in 2010 “Our bank issues interest on mortgages for the purchase of real estate in the secondary housing market, starting from 11.75%” – says Andrey Stepanenko, head of the department for servicing individuals at Raiffeisenbank CJSC.

Calculated by Kreditmart in November 2010, the minimum all-Russian level of interest on mortgages (for the secondary real estate market) was 11.86% for ruble loans and 9.6% for dollar loans. The dynamics of the average market rate on mortgage ruble products, according to “Kreditmart”, is for November 2010 – October 2010 – October 2009 an eloquent chain of 15.19 – 15.71 – 18.68%, respectively.

According to the majority of experts, the rate cut mainly affected ruble mortgage loans. The general director of IPOTEK.RU D. Ovsyannikov calls the annual rate cut by almost a percentage – from 14.6 to 13.7%. According to the head of Rusipoteka A. Ippolitov, the decline is even greater – 12.7%. Considering that the minimum level for mortgage loans in the modern history of Russia was recorded in March 2008 at the level of 12.4%, then we can state the comparability of interest rates on mortgage loans at the end of 2010 with their pre-crisis level. In 2011, if one should expect a further decrease in the level of mortgage payment rates (in the average interbank form), then it is insignificant.

The complete cancellation or partial reduction of bank fees when applying for a mortgage is also positive news in 2010 for new borrowers. In April, Sberbank canceled such an indirect payment on its mortgage loans. Some commercial banks (for example, Flexinvest) followed his example. Those financial banking institutions that reduced the commission instead of completely canceling it, stopped charging fines for early repayment of loans (the same Raiffeisenbank, etc.)

According to the Department of Quality and Strategic Marketing of the Societe Generale Bank, in 2010 the average term for issuing loans for the purchase of housing increased on average in Russia by almost 2 times compared to 2009 (22.5 years instead of 13). Completely new loan products have appeared with a validity period of 30 and even 50 years. The range of mortgage loans has expanded greatly. As the Director General of the NBIK (“Independent Bureau of Mortgage Lending”) E. Taubkina testifies, in addition to the possibility of taking out a mortgage in three types of currencies (rubles, dollars, euros), there are real programs for young families, reliable borrowers and regular clients commercial banks. E. Taubkina also speaks about the appearance in 2010 of mortgage programs, according to which at the time of the complete closure of the loan, the responsible borrower may be 75 years old. A year and a half ago, this was simply unthinkable..

Bankers give the go-ahead …

The past 2010 was marked by a significant decrease in requirements for borrowers from banking institutions. The category of potential mortgage clients included both citizens with little work experience (in many banks, one year of employment is enough at the last job), and business owners (even individual entrepreneurs). The number of bank refusals has decreased, the bureaucratic requirements for registration of documents on income have eased. The head of the department of secondary housing in the agency “Kutuzovsky Prospect” A. Devyatykh announces the return to the market of credit products with the minimum package of documents, whose consideration is carried out in an accelerated mode. N. Konyakhina, Regional Director of DeltaCredit for the Central Federal District, notes the great care and professionalism of bank employees when considering credit cases. “Credit analysis has become more rigorous and detailed. Delays on past loans – especially malicious ones – are likely to be the reason for refusal, ”says N. Konyakhina.

The solidity of the down payment confirms the borrower’s literacy in planning expenses and managing their own budget….

A new phenomenon for post-crisis mortgage lending was the attentiveness of bankers to the number of dependents in the family of the responsible borrower (until 2008, it was practically not taken into account). As D. Ovsyannikov (General Director of IPOTEKA.RU) explains, for each non-working family member, he reduces the monthly guaranteed loan amount by 5-10 thousand rubles. Taking into account the duration of the mortgage, the total loan amount can decrease very significantly – from half a million to a million rubles or even more, and these figures are only for one dependent.

In Russia as a whole, the mortgage payment / income ratio has grown in comparison with the pre-crisis indicator and is 40%. “There are, of course, such banks where this figure reaches 70%, but the majority prefers real figures of the amounts that borrowers are able to spend to repay the loan,” D. Ovsyannikov said..

Down payment on a mortgage

This parameter of a mortgage loan is included in a separate chapter because of the opposite dynamics in relation to other characteristics of housing lending. If in general for 2010 one can state an unconditional easing of credit conditions, then a mortgage without a down payment has ceased to be even an “advertising chant”, what role it was prepared for before the crisis in some banks. There is practically no such loan product on the mortgage market in 2010. This is how the Deputy Head of the Department of RosEvroBank L. Pestretsova explains: “Mortgages without a down payment are the least attractive for banks, mainly due to the unreliability of this category of borrowers even during periods of macroeconomic stability, not to mention crisis years.” Maintaining a mortgage without a down payment in individual banks at the moment can be classified as declarative – interest on them starts at 17% per year, in addition, only for the issuance of such a loan, a bank commission of 7% or more is charged.

“In general, the percentage level of the first installment has become much more realistic for borrowers, having decreased by the end of 2010 to the level of 20-30% of the total mortgage amount, and even up to 10% (special offer of Sberbank),” notes E. Makhota, Vice President Promsvyazbank. Most experts say that a down payment of at least 20% of the cost of housing is optimal (for example, E. Taubkina, NBIK or B. Rotenshtein, 100Creditov.ru). According to the NBIK, the interest on the first installment of 10% is 13.85% (at best!), And the first installment of 20% allows you to count on a rate of no more than 12% per annum. For mortgage interest, almost two points is a huge difference both in the final amount of the overpayment and in the amount of monthly payments.

According to A. Stepanenko (Raiffeisenbank), “the solidity of the initial payment confirms the borrower’s competence in planning expenses and managing his own budget, which, in turn, confirms his creditworthiness”

Mortgage Demand

In 2010, the demand for mortgage loans increased by several times. According to the data at the disposal of Bank Societe Generale Vostok, in December 2010 loans were issued three times more than in January. AHML provides statistics on the issuance of 187.3 thousand mortgage loans worth more than 234 billion rubles in the first three quarters of 2010, which is 2.6 times more than the same temporary indicator for 2009.

Now the majority of openly speculative investors have left the financial market for mortgage loans – resale in recent years has not been particularly profitable (and sometimes even unprofitable). According to A. Devyatykh (Kutuzovsky Prospekt), “the demand for mortgage products is limited by borrowers’ fears that the crisis will repeat itself.” According to B. Rotenstein (100 Kreditov.ru), “the pre-crisis level of demand for mortgage loans will not be achievable in the next year for sure. A rise in housing prices is not expected, and loan rates, despite the decline, are still significant. ”

Most experts associate the growth in demand for credit with the favorable pricing environment on the all-Russian real estate market and deferred demand since 2009. According to RossReestr, for the first time in the past few years, the mortgage market in 2010 did not show seasonal fluctuations (which were recorded both in the pre-crisis years and in 2008-2009). According to N. Konyakhina (DeltaCredit), this is “a clear sign of stagnation as a precursor to stability.”.

This assessment is confirmed by the popular opinion: the November poll of the LEVADA Center gave an eloquent figure of 84.7% (!) Of respondents who consider mortgages to be a risky business. So far, such a percentage of our fellow citizens are not sure either of their own financial well-being, or of the stability of the economy as a whole, there is someone to grow in mortgages – but with the obligatory condition of favorable development of their native country …

What to expect from 2011

Most experts predict a significant increase in demand for mortgages in 2011. Promstroybank (according to E. Makhota) plans to “restore the volume of mortgage lending to the pre-crisis level by the end of 2012”. Rusipoteka Analytical Center gives even more optimistic figures of 600 billion rubles of the total volume of new mortgage loans in Russia in 2011, which is comparable to the prosperous 2007 (720 billion rubles).

The most desirable clients for banks will be borrowers planning solid acquisitions with a positive credit history..

Experts predict that the decline in mortgage interest rates will be slow and insignificant. According to D. Ovsyannikov – “IPOTEK.RU” (with which the majority of experts agree) “the average mortgage rates by the end of 2011 will amount to 12.5%.” A more significant decrease in rates than 1% per year, expressed by Rothenstein (100Creditov.ru), is possible only if inflation is curbed and “lowering it below the current level of 8%, which is unlikely.”.

So we can assume with a high degree of certainty the following:

1. 2011 will be the year of a true revival of mortgage lending in Russia as a whole, the range of mortgage products and the number of banks operating in this financial sector will be significantly expanded.
2. Reducing interest rates and increasing bank loyalty will lead to a significant increase in the number of borrowers. Mortgage conditions for a particular citizen have already almost reached the pre-crisis level of favorableness, and in the coming year they will only get better.
3. Interbank competition to attract clients will be expressed, first of all, in a decrease in the initial mortgage payment (provided that real estate prices are stable)
4. The most desirable clients for banks will be borrowers planning solid acquisitions with a positive credit history, as well as participants in “salary” projects.
5. Everything said in paragraphs 1-4 is possible only under the condition of stable development of the Russian economy and the absence of political and social upheavals in our country..