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Mortgage loans: alive, developing, looking forward to a market turnaround

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Mortgage loans: alive, developing, looking forward to a market turnaround

The construction sphere cannot survive without mortgage loans. But will mortgage loans survive? This topic was discussed at a recent round table: ‘Mortgage loan market prospects in Russia: stagnation or development?’

The Russian construction market is not in the best of conditions. The main reason is decreasing customer demand. If it is not supported, the process will not last long.
The institute of mortgage loans plays an important role here. This issue was discussed at the ‘Mortgage loan market prospects in Russia: stagnation or development?’ round table, which took place at the ‘Russia Today’ information agency.

Facts and figures
Last autumn, when the crisis was only starting, experts forecast a complete crash in the mortgage loan market. What happened with mortgage loans in reality last year?
Let us first consider the general characteristics of mortgage loans in Russia. According to information from Sergei Gordeiko, an expert at the ‘Rusipoteka’ company, the mortgage loan portfolio of banks currently totals the impressive sum of 3.7 bln rubles. Banks lease credit for 30—40 bln rubles monthly. For the first 8 months of 2015, borrowers received 653 bln rubles. The figure seems large, but one should remember that the market has decreased in real terms by 45%, which is not a small amount.
Nevertheless, as we can see, the mortgage loan market is alive and developing. And it was saved, in the experts’ unanimous opinion, by a program of state support. Within the program, 100,000 credits totaling 176 bln rubles were given out. The Ministry of Finance transferred 829m rubles to the banks.
In many regards, these measures helped hold the situation steady. To compare, during the crisis of 2009 only 16% of the amount of credit from the previous year was released – and in 2015 this index has reached 60% of the previous year’s level. The average sum of one loan remains steady and is 1.6 – 1.7m rubles, which offers evidence in favor of the market’s being able to survive.

Table
Dynamics of the mortgage loan market in Russia in 2014 – 2015

2014

2015 (7 months)

The number of released credits (thousands)

1,012.3

338.6

The total volume of released credits (bln rub.)

1,751.7

0.653 (8 months)

The average size of a credit (m rub.)

1.74

1.6

The average mortgage loan rate (%)

12.5

13.9

The average term of the credit (years)

5.5

6.2

The average age of a credit recipient (years old)

43

34

Only large banks stayed on the market
The crisis has significantly changed the market’s configuration: according to Sergei Gordeiko, further concentration has taken place. During the last three years, Sberbank’s mortgage loan segment has increased by 20%—66%. This is a huge growth!
In 2014, 90% of the market share belonged to 15 credit institutions, whereas in 2015 it belonged to only 6. In the first half of the current year, only 5 banks extended their mortgage ownership. For many, mortgage loans have practically become their main product. In 11 banks, mortgages represent more than a half of the total credit portfolio, and 18 financial institutions have increased their presence in new housing development.
Taking into account these facts, we may make three main conclusions. The role of banks with state participation has significantly increased; the program of mortgage loan subsidies has been of great importance; and to a great extent the market has been held by the inertia following on from 2014.

Psychological barrier
Though mortgage loans are a mere banking procedure, their technology and socio-economic role make them quite separate from other bank products. In fact, the loan segment is an individual segment, the rules of which differ greatly from other banking activities. For example, mortgage loan rates: in this segment, after the rise of 2014, they are coming down. Their average value is now 13.9%. This is very important as, according to Yury Gribanov, Head of the Frank Research Group, there is a psychological barrier of 15% which filters out a great number of potential borrowers from taking credit.
The mortgage loan rate decrease is of primary importance. Inquiries reveal a sad truth: only 4% of Russians use mortgage loans, and this number has been steady for several years.
Russians do not like to live on credit, remarks Sergei Antonian, head of research projects at the National Agency for Financial Investigations, and there are reasons to suggest that these figures will not change in the near future. 22% of respondents have no confidence in the future. Besides this, faith in financial institutions has decreased since 2014, especially in banks. Then, 80% of respondents trusted banks; now, it is little more than half.


…not to fail alone
In spite of the crisis and decreases in income, mortgage loans are alive and kicking. There is no threat of market failure, as there is no better tool for the solution to the housing problem, Tatiana Ushkova, the Deputy Chair of the Board of JSCB ‘Absolut Bank’, thinks.
More than that, the complex current situation has positive features. In 2015, the state, banks, and developers gathered “at one table”, and they are now trying to find a consensus.
Thus, the state acknowledges that it helps constructors with taxpayers’ money, and its possibilities are limited. Constructors, in their turn, agree to decrease the cost-effectiveness of their business, and banks agree to retain their rate.
The ability of the main players to come to an understanding may come to the aid of the mortgage loan market. Mass bankruptcies in construction companies is a reality at present, and the mortgage loan subsidies program has helped constructors to step back from the edge. More than that, many of them are in fact strengthening their positions now.
The absence of panic among the population is also helping to stabilize the situation. Banks are extremely careful, but they must be responsible for credits released. The state intends to create a turnaround manager in case it seems that it must offer additional protection for borrowers.
Constructors contribute as well: there is a trend for decreasing prices for housing. The price lowers whilst the quality is retained, which leads to a decrease in the sums borrowed.
The practice of object accreditation has expanded. Banks carefully assess their risks, and the clients get an additional warranty. This is very useful, as credit institutions provide developers with professional consulting for the continuation of the projects started in other market conditions.

Want a mortgage loan? Have children.
The crisis has introduced some unexpected changes in the process of credit release. The social portrait of a borrower has changed: as was noted at the ‘round table’, they are now 10 years younger. If not so long ago the average age of a mortgage loan recipient was 40 – 45 years, it is now 30 – 37.
The credit requirements and the sum have also changed: the average term before the crisis was 5-6 years, whereas now it is over 6 years.
Every forth deal (before the crisis, every tenth) is held with maternity capital participation. Thus, the birth of a second child is becoming a driver for the mortgage loan market.
But there is another side to this phenomenon: the borrowers’ parents are taking part in half of mortgage loans. Parents want to help their children obtain their own housing.
Banks have changed their attitude toward clients: formerly, they welcomed those whose salary was more than 150,000 rubles a month. Now, they are not so pleased with them: if such a client loses his job, it is very difficult for him to find one with the same income.
Borrowers with an income of 50,000 – 100,000 rubles a month are the most sought-after now: their salary is good and it is easier for them to find a new job with the same income. Women with higher education more often approach banks. Citizens from small towns seldom take credit: mortgage loan borrowers are mostly concentrated in large cities.
The financial literacy of the population is growing slowly. A percentage of citizens in worsened financial condition do not want to have anything to do with banks. This phenomenon is typical, Sergei Antonian thinks: it happens all over the world.
Mortgage loan portfolios of banks are gradually worsening and restructuring credits has become the norm.

Neither up nor down
In Russia, mortgage loans are not merely a kind of bank credit, but also a very important social project. Psychologists have found that real estate purchases are emotionally similar to the birth of a second child. That’s why experts are sure that the maternity capital program must be prolonged. But there is no such provision in the budget draft for 2016.
Another important point: it is reasonable to expand state support into the secondary housing market. In some regions it has dropped by 40% - 70%, and on average around the country by 50%.
It is important for stimulating the construction industry, as many people buy new housing only after selling their old housing. Now this source has largely evaporated. On the whole, the forecast for 2016 looks as follows: great changes are not expected on the mortgage loan market; the situation will not worsen, but one cannot expect many positive changes.
Much depends on the state program for mortgage loan support. If continued, it will consolidate the market. If not, the situation will get worse. But even in this case, there won’t be any great crash.


Vladimir GURVICH

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