Expert opinion: Dmitry Medvedev’s statement on the mortgage rate decrease is populism

Presently, the Central Bank’s key rate for commercial banks is — 8,75%. Following Mr Medvedev’s logic, mortgage lenders will have to work in the red in case the mortgage rate goes down to 6%. But banks must bring profit to their shareholders. And as long as the key rate is as it is, I do not see any significant reasons for its decrease.

Even supposing the key rate sharply goes down to 6%, it will have negative consequences for the financial market. Presently, foreign workers mainly  buy up loan securities in Russia. Stock market players are interested in a high key rate. If the rate decreases to 6%, they will get the loan stocks off, and the Russian financial sector will be none the better for it.

The second thing is that banks are sure to like mortgages as they get a decent downpayment far removed from a risky consumer crediting. However, mortgages are now also rather risky for banks as they do not increase the price.

More than that, in some regions the decrease trend continues, or the market stagnates, like in Moscow. That is why the banks worry about the fact that they might give credit for something which will not cover the amount of the credit in the short term.

On the one hand, the banks want to give mortgages, whilst on the other the economic situation does not allow them to expect the mortgage to be a profitable and steady niche for them. So, the increase of the clients’ portfolio alongside a sharp decrease of the rate is an improvident idea in the current economic condition.

There is also a third aspect I’d like to speak about. Such statements by high-rank authorities and populist claims impact the whole market negatively. Actually, the rate is being decreased gradually and presently it is at the level of 11%. A year ago it was 15%,  and still earlier it was 17—18%. We see a good tendency.

On hearing about the rate of 6—7% customers will decide to postpone a purchase until better days. And this means that developers will not get enough customers ready to buy today. It might deteriorate the situation with the demand on the newbuild market, as unsteady as it is.

From my point of view, Dmitry Medvedev’s statement was made to show what a caring and kind Prime-Minister he is and to sustain his sharply declining rating.

As far as the exhaustion of state funding for the support of mortgage borrowers is concerned, even the fact concerning finance allocation means an absence of the market economy. The budget is still used for “extinguishing local fires” in Russia. Such a situation is impossible in countries with a market economy. There, every citizen must be able to calculate his own risks. And the Russian authorities are afraid that it will come to no good. But such methods just make it possible for people to stay kidult, meaning that in any case “the state will help”.

However, if there were no such support, the real estate market would have fallen harder, whilst currently it is merely “sliding down”. Due to the previously mentioned state support a number of borrowers did not throw the keys on the table of the banks, as happened in America in 2008, but kept on living in their flats and paying to banks.

Thus, the situation is two-fold: it is good to have support, but why should it be?

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