At the next meeting, the Central Bank of the Russian Federation raised the key rate by 1 percentage point: from 12 to 13% per annum. The decision was expected, although many hoped that the rate would remain the same. What consequences await the market and home buyers? Will the changes affect preferential mortgage programs?
Unlike the shock in mid-August, when the key rate was immediately raised by 3.5 percentage points at an extraordinary meeting, this time the market took this development of events more calmly.
A decrease in demand and prices in the secondary market, a flow of buyers to the primary market, an increase in mortgage rates and a reduction in record demand for mortgages – all this was predicted by experts back in August.
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But this time the situation is complicated by the tightening of preferential mortgage conditions. Recently, the minimum down payment for a preferential mortgage was raised from 15 to 20%, and the amount of compensation to banks for financing preferential mortgage programs, on the contrary, was cut by 0.5 percentage points.
What will the next increase in the key rate change?
Mikhail Khorkov, head of the analytics committee of the Russian Guild of Managers and Developers:
— The most important changes for the housing market have already happened earlier. A 1% rate increase won’t change much.
In the short term, in any case, the market expected a noticeable decline in activity and a period of adaptation to new conditions. Therefore, what is more important now is not the size, but the duration of the period of high mortgage rates.
Tatyana Reshetnikova, Deputy Head of the Mortgage Department of the federal company “Etazhi”
— Such an increase is not critical for the market. Moreover, it has already begun to adapt to new lending conditions. Another rate increase in the short term will fuel demand in the real estate market even more: many will try to buy in time, fearing a rise in mortgage rates.
It is possible that banks will now restrain as much as possible the upward revision of mortgage rates. But their increase cannot be ruled out against the backdrop of changes in the key rate.
Demand will shift even more towards primary and suburban housing, where preferential mortgage programs will continue.
But if high rates remain in effect for a long time, problems will begin with the sale of existing real estate for those planning to purchase a new building. This situation has already arisen in the spring of 2022.
Maxim Eltsov, General Director of PIA Real Estate:
— For the real estate market, an increase in the key rate is a negative factor. We expect a further increase in mortgage rates on the secondary market to 14% per annum and higher. Market activity will decrease. In order for people to somehow adapt and start taking out loans at 14%, a lot of time must pass.
The gap between the primary and secondary markets will increase, due to the difference between preferential and market rates. Payments to banks from the budget will increase (compensation for lost income). Therefore, we should wait for decisions to increase preferential rates in order to reduce budget expenses.
Another round of rumors and hasty deals “to get ahead of the worse” is coming. But the wave of excitement in the primary market will be weaker than the previous ones, and will be followed by a long-term cooling phase.
The greater the gap between the “secondary” and new buildings, the less common sense there is in decision-making: cheap money will remain only in the “primary”, but the liquidity of such objects will become completely doubtful.
The real price of real estate is determined by the secondary market. It will be difficult to sell an apartment purchased for a cheap loan at least at the same price.
In addition, the down payment (especially an increased one) is often formed through the sale of existing housing on the secondary market. This won’t be easy either.
Alexey Krichevsky, financial expert, author of the Telegram channel “Economism”:
— Secondary housing will become even more inaccessible, since from Monday it will be possible to observe an increase in rates from the largest banks.
At the same time, the threat of a revision of the terms of preferential mortgages for new buildings is growing: 8% per annum at a Central Bank rate of 13% does not look entirely correct. And banks and developers are running out of resources to reduce interest rates.
Therefore, for new buildings, the most likely scenario for September and October is a serious decrease in demand.
Evgeny Tkachev, investment specialist:
— The secondary market, after increasing the key rate to 13%, will continue to occupy the position of an outsider. An increase in the key rate entails an increase in mortgage rates, so in the secondary market the buyer can only be the person who either has more than 50% of the cost of the property or has cash.
Mortgage demand from the secondary market will flow towards the new buildings market. But in the primary market, the difference between rates for standard programs and programs with state support reaches 7 percentage points. In my opinion, it is not very profitable for the state to subsidize this story. State programs should become more targeted.
We should also expect tougher conditions for preferential programs. On the sidelines they are already saying that the minimum down payment after the New Year will increase to 30%.
Yulia Anisimova, mortgage lending expert:
— An increase in the key rate will also push up mortgage rates. At the same time, housing loans will become available to a smaller number of borrowers, because the monthly payment will become larger. Interest in expensive mortgage loans will also decrease.
As a result, demand in the real estate market will fall. There is, however, a plus for buyers: prices for secondary housing will decline.
Alexander Terentyev, head of sales department at Digital Village Vertical:
— An increase in the key rate will lead to another increase in the price gap between new buildings and secondary housing, which has been narrowing recently. This is due to the fact that mortgage programs with government support will be even more attractive compared to standard mortgage rates on the secondary market.
In the apartment market, developers will be even more active in using subsidized programs and tranche mortgages. It is also possible that new installment plans will emerge. But interesting conditions, as a rule, are associated with an increase in price.
Therefore, the cost of square meters in the housing and apartment market will continue to rise.
Dmitry Shchegelsky, General Director of the Benois Academy of Sciences, President of the St. Petersburg Chamber of Real Estate:
— The new increase in the key rate, unfortunately, will create an even greater imbalance between the primary and secondary markets, because mortgage rates in the primary market will not change. Obviously, the secondary market will sag, and developers, taking advantage of the moment, will raise prices again.
Natalya Shichalina, Sense Sales Director:
— Such an adjustment to the key rate may lead to an increase in rates on mortgage products by up to 2 percentage points.
At the same time, we do not yet predict any significant changes in preferential products: they will remain available to buyers of new housing. In the future, some market players will offer special promotions and offers for a specific pool of lots.
We do not foresee any fundamental changes in prices: the cost of new buildings continues to be influenced by the stage of construction, the cost of materials and the organization of supply chains.
Vyacheslav Priymak, Head of Mortgage Products Department, Ingrad Group of Companies:
— An increase in the key rate will undoubtedly affect the growth of mortgages – both on the secondary market and on new buildings, where the loan does not fit into the limit of state programs.
The focus of buyers is shifting to new buildings, but an increase in the down payment from 15 to 20% has a strong negative impact on demand. Losses can be estimated at 10–20% of all transactions.
Whatever one may say, “resale” also affects demand in the segment of new buildings. After all, most of the buyers of new buildings use the money received after the sale of the secondary building for the down payment.
Elena Chegodaeva, head of the analytics and consulting department at NDV – Real Estate Supermarket:
— The new key rate has little effect on the growth of mortgage rates: perhaps they will be adjusted by 0.8–1.5 percentage points.
More seriously, the conditions for preferential mortgages will most likely change in the future. This is confirmed by the verbal interventions of the Ministry of Finance, which wants to reduce the share of concessional loans by 20–30%. It is unlikely that this will be a new increase in the down payment; more likely, issuance will be tightened and subsidies to the banking system will be reduced.
Mortgage remains the main method of payment, so there is no need to talk about a massive refusal of mortgages, although for some time there will be a lull in both issuance and applications.
But the information background is so heated by expectations of further growth in key and mortgage rates that the volatility of the ruble leaves no chance: it falls and falls. Therefore, the average consumer understands that the Central Bank, although slowly but surely, is pursuing a policy of targeting inflation, which means a gradual increase in the key rate.
In terms of demand, there will not be very serious drawdowns – on the contrary, moments like this will actually increase demand. But there is another limitation – rising prices. If developers begin to increase the weighted average cost per meter and the average budget due to rush demand, this may slow down and reduce demand.
Summary
According to experts, an increase in the key rate will lead to a decrease in buyer activity. Demand will shift even more towards primary housing, where preferential mortgage programs will continue. The secondary market will sag, prices for finished housing will decline.
But despite cheaper loans for new buildings compared to the secondary market, the liquidity of properties on the primary market will become questionable: then it will be impossible to sell the apartment at least at the same price.
8% per annum under the preferential mortgage program at a key rate of 13% means too much cost for the state to subsidize. The gap between the key rate and the subsidized rate on preferential mortgages is fraught with further revision and tightening of the conditions of the program with state support.