The Minister for Construction, Mikhail Menn, told journalists at “RIA Novosti” how the Ministry of Construction is rescuing mortgage loans and in what way the authorities are ready to help loan subscribers (borrowers), who find themselves in a tricky situation.
We entered the year of 2015 with a sudden skyrocketing of the Central Bank key rate to 17%, and, as a result, the gloomy prospect that people will lose all interest to residential loans. The Minister of Construction and Utilities, Mikhail Menn, explained how the Ministry is rescuing mortgage loans and in what way the authorities are ready to help loan subscribers (borrowers), who find themselves in a tricky situation.
— Mr. Menn, the most acute question for the moment: what is the situation with the mortgage loans market in Russia and what is its future?
— During the first two months of 2015 - that is, before the mortgage loan rate subsidies program started - the total decrease was 24% in monetary terms compared with the same period in 2014. This decrease, of course, influenced demand and the whole market for housing construction correspondingly. The start of the mortgage loan rate subsidies program, to 12% a year, has already stimulated the number of loan applications, which has increased up to last year’s level. Regional residents are very much interested in the program, so we asked the Ministry of Finance to consider an increase to the program’s financing. It is a support mechanism for both residents and developers. In figures: about 4 mln people work in construction and one job in our industry provides 8 jobs in related industries. Of course, it would be difficult to reach last year’s figures, when people borrowed 1.75 trillion rubles. But we expect, because of the program, to be at a level of at least 50% of that record index.
— The majority of developers point out the direct connection between construction continuation and state support for mortgage loans. Do we have the first results of the mortgage loan rate subsidies program?
— The program started to work quickly. The advantage is that banks did not have to wait until all the final documents were accepted - the existence of the basic statutory act was enough. The thing is that it is not about lending money “in advance” to banking institutions: the rate will be subsidized later by the results of banks’ activities. That is, first of all the banks grant a loan at a reduced rate and then they advocate the loans to the Government regarding how they correspond to the criteria defined in the regulation. We must be sure that a resident who applied to the bank for a mortgage loan has already received the money for a dwelling purchase.
We’ve got the first information from the banks: 16,235 families applied to Sberbank for 12% rate mortgage loans for the total sum of 30 bln rubles. 345 of them have been successful already. VTB24 bank received 7,211 families’ applications for a total of 14.8 bln rubles. 97 applications have already been approved, and the rest are being considered. It’s good progress which shows that the initiative of the Ministry of Construction to decrease the rate to 12% has been supported both by residents and developers.
I’ll remind you of the conditions. Firstly, a mortgage loan is granted for a flat in a newly built house. Secondly, the initial payment is to be no less than 20% of the dwelling cost. I must mention that last year there were a lot of banking packages allowing for a 10%-30% initial payment. And thirdly, economy class dwelling purchase loans must be granted: there is a restriction in the program on the maximum size of the loan. It cannot exceed 3 mln rubles, except for Moscow, the Moscow region and Saint-Petersburg, where this standard is objectively higher – 8 mln rubles.
But this is not about the principle of the loan. For the regions, if the initial payment is 20% the total of the loan may be 3.6 mln rubles. It is a good sum for purchasing a good apartment in most regions of Russia.
— Are there any restrictions on the banks taking part in the program?
— Only Russian banks with experience in working with mortgage loans can take part in the program. Also, a minimal monthly lending of mortgage loans has been established – not less than 300 mln rubles for a bank. No other restrictions.
— Isn’t 20 bln rubles too small a volume for the program?
— These 20 bln provide for 400 bln ruble loans. The demand is rather big, and it is quite possible that when we get the first results of the program’s implementation we, together with the Ministry of Finance, will be looking for mechanisms to increase subsidies. But it is important that the government takes the responsibility for the families having received the mortgage loans on the program for the period of validity, regardless of the terms of the loan’s repayment – be it 5 or 30 years.
— What if a bank applies to the Government for subsidies on original loans and they are considered out of keeping with the program?
— We won’t finance loans that do not correspond with our requirements. “Virtual” compensations are out of the question. But borrowers won’t suffer - they will have got the 12% rate already.
— How many banks can take part in the program?
— The major players are already clear. Sberbank is ready to provide loans to a total of 200 bln rubles within the program. VTB can provide 100 bln rubles for mortgage loans. At this point, 32 banks have applied to participate in the mortgage loan subsidies program, including VTB24, JSC “Bank of Moscow”, PJSC “Khanty-Mansy Bank Otkrytiye”, Bank “Vozrozhdeniye” (PJSC), JSC “Bank “Ak Bars”, PJSC JSCB “Sviaz-Bank”, and PJSC “Promsviazbank”. Following the data from the Ministry of Finance, the banks have already applied for 500 bln rubles.
— Some experts are uptight about the mortgage loan rate being lower than inflation - it could result in a real estate market “bubble” or in hoodwinked investors.
— We monitor the market thoroughly. An unstable situation with some developers is of course a worry. But we must take into account the fact that banks working within the mortgage loan subsidies program are sure to check all the risks and will not adopt dwelling purchases at the zero cycle from an unknown company without any business reputation.
Again, as we have some worries about developers’ stability, we are considering the possibility of strengthening our requirements for insurance companies, which are to guarantee developers’ responsibility. Insurance companies must be strong, with good capital stock, so that they can bear the obligations they undertake.
— What will the program be in 2016? Are you going to apply for its financing?
— If the demand stays as high as it was after the start of the program, we’ll consider it. Our position and the Ministry of Finance’s position coincide here. But it is too early for any forecast. We are very dependent on the key rate, and it is important to see how the program works this year. We very much hope that the Central Bank rate will be lower than 14% and mortgage loans will be available without state support.
—What will be your reaction if the Central Bank alters the key rate again?
— We agreed at the meeting with First Vice-Premier Igor Shuvalov that a 12% rate is a decisive move. We won’t change the requirements and conditions in the subsidies program regardless of any key rate changes. In the case of an upward trend, banks will cut rates themselves and compete for clients.