Mortgage interest rates in Russia, according to Finance Minister Safonov, will not become more appealing by the year 2027.
"The struggling housing market in Russia:
The horizon for lower mortgage rates in Russia seems bleak, as per observations by Professor Alexander Safonov from the Financial University under the Russian government. Speaking to Moscow 24 TV channel, he pointed out the current interest rate of 21 percent as a major hindrance for borrowers, with market mortgage rates even higher. Banks' discontent with the abolition of commissions for issuing state mortgages and builders' inability to lower housing prices due to their own loan repayments have further crippled lending.
Professor Safonov expects these factors to persist until 2025, as there's little chance of inflation reducing to the target 4 percent by then, which would make commercial mortgage terms more favorable.
Previously, the Russian mortgage market was speculated to hit rock bottom, with 2025 results forecasted to be among the worst in the past eight years, possibly seeing a 30-40 percent decrease in lending volumes versus 2024.
Mortgage terms stretching to record lengths:
The average mortgage term in Russia has hit an all-time high of 27 years. This is due to a complex interplay of economic, regulatory, and market factors. High interest rates, restrictive lending policies, cuts in subsidized mortgage programs, a sluggish economy, and a challenged construction sector have all contributed to this lengthy repayment period.
There's a possibility that improvements in mortgage terms may occur by 2027, as some easing in credit market conditions is predicted and regional policies promote housing finance. However, these advancements will likely be moderate and gradual, contingent upon the balance between regulatory policies, economic recovery, and banking sector risk appetite.
Economic forces at play:
- High lending rates: Autonomous factors and tighter regulations have kept loan rates, including mortgages, high, despite decreases in deposit rates and money market yields.
- Cautious banking: Elevated credit risk premiums reflect inherent bank caution and the need to maintain liquidity and capital adequacy, which constrain mortgage offerings.
- Subsidized mortgage programs: Their reduction limits incentives for both borrowers and lenders to extend mortgage durations.
- Economic environment: High inflation expectations, a cooling economy, and slow demand growth stifle mortgage borrowing.
- Construction sector challenges: Higher taxes, falling demand, and changing policies affect the housing supply and financing conditions.
- Credit market dynamics: The shift in funding preferences impacts the overall credit portfolio and mortgage growth trends, with mortgage lending doubling in early 2024 due to subsidized loans but slowing thereafter.
Prospects for improvement:
Regional policy proposals to ease project financing and infrastructure bond limits could potentially enhance housing development and financing conditions, resulting in improved mortgage offerings. However, conservative banking practices and macroprudential policies are likely to remain influential factors, maintaining a cautious border for mortgage expansion. Given the current economic hurdles, significant improvements in mortgage terms will depend on a balance between regulatory policies, economic recovery, and banking sector risk appetite."
- The average mortgage term in Russia, currently at an all-time high of 27 years, may witness some reduction by 2027, as a result of predicted easing in credit market conditions and regional policies that promote housing finance.
- In the mortgage market of Russia, forecasts suggest that lending volumes could see a 30-40 percent decrease in 2025 compared to 2024, owing to challenges in the housing market.
- Businesses and financial institutions in Russia are looking ahead to 2025, hopeful for a reduction in commercial mortgage terms, as there is little chance of inflation reducing to the target 4 percent by then.
- The finance sector in Moscow is grappling with 21 percent interest rates that are deterring borrowers, as observed by Professor Alexander Safonov, which are making investments in real-estate difficult and potentially unattractive.
- Banks and builders in the Russian housing market are facing difficulties, with banks expressing discontent over the abolition of commissions for issuing state mortgages and builders being unable to lower housing prices due to their own loan repayments.
