The search for the ideal mortgage rate continues

According to today’s edition of Kommersant, the Russian Agency for Housing Mortgage Lending will increase its lowest mortgage rate in 2013 by approximately one percent. The rate which was set in accordance with the Presidential requirement is currently calculated by adding 2.2 percent to the inflation rate. The Agency stated that the rate hike is motivated by increased funding costs.

Consequently, the mortgage rate for the Agency’s cheapest lending products will increase from 8.3 percent to 9.2 percent p.a. and the Agency will lose the title of the most favorable lender. To add insult to injury, the Agency will thus disregard Vladimir Putin’s requirement to lower the mortgage rate to 2.2 percent above the inflation. However, there is still time, as the Russian President asked that this adjustment take place by 2018. It is not likely that the Agency’s move to increase its mortgage rate will cause a major shock in the market, as it provided only 6.2 percent of the total mortgage lending volume in Russia during the first nine months of 2012 – 32,396 loans with a volume of 43.3 billion roubles (USD 1.38 billion). Sberbank is the undisputed market leader with 23.3 percent of the total mortgage lending volume in the same period, or 163 billion roubles (USD 5.2 billion).

Some of the Agency’s products will become even more expensive: while the lowest mortgage rate will be calculated by adding 3.1 percent (previously 2.2 percent) to the prevailing inflation rate, the highest rate will be set as much as 8.45 percent (previously 6.7 percent) above the inflation. The spread varies in accordance with maturity, down payment and other conditions. For example, the mortgage rate for the Agency’s “Standard” product, accounting for well above 50 percent of its total lending volume, will increase from 12.8 percent to 14.55 percent p.a. According to the Russian Central Bank, the average weighted mortgage rate in Russia during the first nine months of 2012 was 12.3 percent p.a.

Experts recognize that the Agency postponed the unpopular move as long as it was possible and finally had to adjust its business to the market conditions. Sberbank, the largest market player, also increased its mortgage lending rates by 0.5 percent in average. In October alone, twelve other banks followed suit. Coupled with higher financing costs, high demand for mortgage lending could bring about further mortgage rate increases.


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