Russian Central Bank to Tighten Its Control Over Mortgage Loans

New rules will enter into force in August

The Bank of Russia is going to put stricter control on mortgage loans with an initial installment of about 20% of the total cost of housing, according to the RIA Novosti news agency.

In the first quarter this year, the number of mortgage loans with small initial installments has reached 45% on the new homes market in Russia. In comparison to the second quarter of last year, this figure was just 24%. On the secondary housing market, the rise was from 30% to 33%. In reaction to these changes, the regulator has decided to raise risk coefficients by 100 percentage points. This new rule will be applied to all mortgage loans issued after August 1. 

As the Bank of Russia has explained, this measure is aimed to make financial organizations not as interested in pumping up the lending at the expense of those who want to take a mortgage loan with a small initial installment. In addition, the regulator says that the new rule will help banks to stay prepared for possible stressful situations in the future.

Currently, the mortgage market in Russia as well as real estate prices are growing rapidly and the initial installments now play a big role in stabilizing the entire Russian banking system.

The Bank of Russia has also offered banks to cover mortgage insurance costs on their own. According to Elvira Nabiullina, the head of the bank, such insurance is too expensive for many citizens even though it’s a very important mechanism for the sector.

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