What bonuses do banks and developers offer their clients after the key rate increases? What is more profitable: “primary” or “secondary”? What are the prospects for buyers, sellers and lenders? Managing partner of the premium real estate agency Etagi Prime, Rigina Gordeeva, discusses these and other topics.
What did the mortgage fluctuations of 2022 lead to?
2022 was the year of subsidized mortgage loans for new buildings. Buyers were given the opportunity to purchase apartments on the most favorable terms – at almost zero interest rates with a comfortable monthly payment and with a minimum down payment.
In February 2022, the mortgage lending market in Russia slowed down, and in April, loan issuance halved. Due to the increase in the interest rate on retail loans to 24%, the mortgage market for secondary housing has practically frozen. Clients found themselves in a hopeless situation: some agreed to the banks’ new conditions, while those who couldn’t afford the loan refused the deal.
In May 2022, sales began to increase in the new buildings market. Moscow developers have launched mortgage programs at 0.1% for the entire term without increasing the cost of the loan. This supported the market during a period of uncertainty. For everyone who needed to “land” their accumulated money, purchasing with low payments and almost no overpayment was beneficial.
In the regions there were almost no such programs, so they looked at what was happening with bewilderment. With little new development, the regional real estate market stagnated until September 2022. By that time, there was already an understanding in society that life goes on, supply chains are starting to work, and the situation began to improve.
Changes in the mortgage market in 2023
In 2022, the Central Bank closely monitored all processes taking place in the market, but did not intervene in the situation. After analyzing the data, the regulator announced new rules on January 1, 2023, which provoked fundamental changes in the structure of the market and mortgage transactions. What has changed?
The down payment has increased, but alternatives have appeared
The Central Bank of the Russian Federation ordered credit institutions to keep the so-called emergency reserve in their accounts – an amount that sometimes exceeds the mortgage loan by 1.5 times. In this regard, banks began to carefully study their clients and less often issue loans with a minimum down payment. The changes affected both the primary and secondary real estate markets.
This slowed down the growth in prices for primary goods, accelerated by state support. It took buyers about a month to assess the safety of the ongoing processes and find other options for profitable acquisition of real estate.
Fortunately, due to the activity of developers and banks, there are many of them:
- Reduced rates for the period of construction of the facility (two to three years). In essence, this is the same subsidy, but modified.
- A tranche mortgage for some projects is a scheme where payments are ided into several parts and repaid in a manner convenient for the borrower.
- Deferment of the down payment for a period of up to one year.
- Rent from the developer – when the developer accrues cashback to buyers after signing a share participation agreement. They can pay rent from the developer’s or his partner’s own real estate pool. This is convenient for those who need to sell their home in order to invest in a new one and live in a rented apartment for some time.
- Various collaborations between banks and developers. For example, accrual of cashback in a few percent of the amount of the object or return of part of the loan cost in the form of bonuses.
Clients are retained either by inidual discounts or by favorable lending conditions and ease of approval of the borrower and the facility. Banks often give clients gifts from partners – discount and bonus cards.
Raising rates and market responses
Mortgage market rates are rising today. Experts predict that this trend will continue, and classic mortgage loans without government support will cost more.
However, developers have modeled several marketing tools in order to level out the restrictions of the Central Bank and not confuse borrowers:
- Inclusion of additional life insurance options and services into the system of discounts on interest rates. The choice of insurance company is limited, but in the long run the client wins by receiving from 0.5 to 1% discount on the rate.
- Variations of a mortgage without a down payment, when a client can mortgage an existing property, free of encumbrances, in order to receive funds for a down payment and in the same bank apply for a “primary” or “secondary” mortgage.
Thus, two mortgages “live” in parallel: the first is funds taken as collateral for an existing apartment; the second is money to buy a new one. Interest rates on such loans do not exceed the market average. This option is suitable for those who do not have start-up capital, but have a need to improve their living conditions.
Participation in programs with state support has been limited
From 2023, only one government-subsidized loan is available to one inidual. Previously, it was possible to take out several preferential mortgages, but this option is no longer available.
If a family needs to buy two properties under the family mortgage program, you can arrange one transaction for the father and the second for the mother. To do this, you will need to draw up a marriage contract that will exclude the second adult from the transaction. In this case, the spouse does not claim ownership of the object and does not share the obligations. Also in this case, only his personal income is taken into account when approving the loan.
Family mortgages have become more accessible
Until 2023, a family could take out a loan under this state program if at least one child was born after January 1, 2018. Now families with two or more minor children can become participants in such a mortgage. The family mortgage program is popular, as evidenced by the 2023 indicators: family mortgages account for about 30–40% of the total share of programs with state support.
How changes in legislation adjusted demand and prices
After the key rate was changed in 2023, demand began to shift towards the secondary market. Buyers have become more interested in ready-made properties that can be rented out or moved into quickly.
At the same time, there was no obvious rise in prices for secondary market objects, and today the trading volume fluctuates between 5–10%. On the new housing market, developers, on the contrary, are reducing rates and offering discounts of around 5–10% on comfort and business class properties.
“Primary” or “secondary”: which is more profitable in 2023
The answer to the question of whether it is more profitable to buy a “secondary” or a “primary” depends on what problem the buyer is solving right now. Advantageous offers on the primary market are suitable for investment, and secondary housing is suitable for immediate occupancy.
Purchasing on the primary market is beneficial when a family already lives in their own apartment, but is waiting for a new addition and plans to improve their living conditions. In such circumstances, with a sufficient down payment and stable work, it is better to buy a new building.
A promising area, the first owners, the opportunity to equip housing to your liking, a program with a deferred down payment, the ability to pay in tranches and subsidies in the first two to three years of construction – all this encourages just such a step.
It is better to buy a resale property when you urgently need to move into a new home. For example, if the owners ask to vacate the rented apartment. If you have a down payment, purchasing your own property will, of course, be more profitable than continuing to pay rent.
The change in the key rate of the Central Bank on August 15, 2023 by 3.5% immediately pushed the market towards new buildings. Banks are forced to react and are already revising their matrices for secondary housing. In the near future we will see mortgage rates on finished housing in the region of 14–16% per annum, which will make a secondary mortgage a very expensive pleasure. Subsidized rates from the state will remain. The issue of increasing base rates with a new key rate remains open.
Mortgage for inidual housing construction: trends and forecasts
Inidual housing construction is gaining momentum. Today, 80% of Russia’s territory is rural areas, and 57% of real estate is inidual development.
Since 2023, government support has extended to this sector. And although it is still difficult for banks to assess the risks and prospects of objects, the methodology for working with private houses is being developed. Inidual housing construction falls under all state mortgage lending programs: rural, family, IT, military mortgages.
Today, large families have few options to find a suitable multi-room apartment in Moscow. But building a house in New Moscow or in the Moscow region at prices 40 percent cheaper is quite possible. State support only fuels interest in this option, making it one of the most accessible.
Perspectives for Buyers, Sellers and Developers
Buyers will be increasingly less willing to enter into transactions at 12–13% per annum in the future. There are many offers on the real estate market today, but effective demand is becoming less and less.
Against the backdrop of an increase in the key rate, sellers are ready to bargain and reduce the cost of objects by 7–10%, but this is a short-term trend.
Due to the end of state support, developers will continue to look for ways to attract buyers with discounts and collaborations with compensation (package offers) or will impose an increase in apartment prices on cheap subsidized rates. Even when the down payment increases to 30%, developers, together with banks, will find options to make the purchase more profitable for clients.