Storm in secondary housing market: what happens to mortgage after key rate increase

Mortgages have become more expensive

October turned out to be difficult for the mortgage market. On the 1st, the new requirements of the Central Bank came into force — the risk coefficients for housing loans with a low down payment have been increased for banks. They have become protective for loans with a starting down payment below 10%. Additional surcharges do not apply only to loans with a down payment of more than 30% for borrowers with a debt burden below 70%.

Besides, the government has also changed the terms of the main preferential mortgage programmes — the minimum down payment on them has risen from 15% to 20%.

On October 27, 2023, the Board of Directors of the Bank of Russia decided to raise the key rate by 2 points at once — up to 15% per annum. In response, banks increased interest on loans.

According to banki.ru, maximum mortgage rates on the secondary market today reach 24,769% — in VTB, 21,415% — Sber, 20,6% — Alfa-Bank, 17,3% — Promsvyazbank, 22,434% — Uralsib, 26,225% — Absolut Bank, 21% — Otkritie Bank.

The next meeting of the Board of Directors of the Bank of Russia, at which the issue of the level of the key rate will be considered, is scheduled for December 15, 2023. So far, the Bank of Russia is not set to ease monetary policy.

Share of “secondary” accounted for 65% of loans issued

In Tatarstan, mortgage loans worth 105 billion rubles were issued in 9 months of 2023. The share of secondary housing accounts for 65% of loans issued, new buildings — 25%, residential housing — 10%, the press service of Sberbank reported. About 90% of the company's preferential mortgage loans fall on new buildings and private housing construction.

The minimum rate under the State Support programme starts from 8% per annum, for Family Mortgage — from 6% per annum. A loan under the Mortgage for IT programme can be issued at an even lower rate — from 5% per annum.

Since November 3, the bank has changed mortgage rates for basic programmes in connection with the increase of the Central Bank's key rate from 13% to 15% per annum on October 27. The minimum rate for programmes for the purchase of ready-made and under construction housing amounts to 15,6% per annum. Sber adjusted rates by 1,4 percentage points, while the growth of the key rate was 2 percentage points, the bank's press service stressed.

Secondary housing is fading into the background

Olga Vasyanina, the head of the organisation of sales of mortgage loans at Ak Bars Bank, confirmed that secondary housing is now fading into the background, since the main share of sales took place under mortgages, and high rates do not stimulate the development of this market.

Now the rates on the secondary market start from 16% per annum at most banks, she notes:

“We see the beginning of a lull. Those who wanted to have already bought or are buying right now by the previously approved applications, and the rest of the people are in standby mode," says the banker. “We expect an increase in mortgage lending demand for new buildings. The real estate market should continue to develop, but due to the changes of the Central Bank, the development will now take place in the context of the primary market.”

Activity in the secondary housing market at current rates, in her opinion, will continue to decline.

In 2024, mortgage issuance will decrease by 30% to the level of 2023

“High mortgage interest rates are not an obstacle to buying an apartment today. Digital services in the mortgage business, as well as fine-tuning of the product itself, help customers not to stop wanting to get housing," notes Vyacheslav Dusaleev, the retail business director at Rosbank.

According to Rosbank forecasts, by the end of 2023, the volume of mortgage loans will reach 7,3 trillion rubles. In 2024, mortgage issuance will decrease by 30% compared to 2023 and will return to indicators comparable to the result of 2022, even exceeding them by 5% — the volume of loans will be at the level of 5 trillion rubles.

The level of development of the Russian mortgage market and a large selection of technological solutions make it possible to buy real estate with a mortgage even at a high key rate, Dusaleev is convinced. For example, 90% of customers applying for mortgages at rates above 15%, according to Rosbank, reduce their rates under the refinancing programme during the year.

We can only assume what the mortgage market will be like in the second half of 2024. If concessional lending programmes cease to operate on the market and the high key rate remains, the market may sink.

“If additional incentive measures appear, such as targeted mortgages, then demand will be able to stay afloat," Vyacheslav Dusaleev believes. “The launch of new mortgage programmes together with developers is likely, which could stimulate sales under the basic programmes of banks and the introduction of various options for deferring the payment of the initial mortgage payment (“Mortgage in installments”) from the seller.”

Everything has been done so that secondary housing is not bought

“There are still those mortgage holders who have the previously approved lending conditions," said Anastasia Gizatova, a real estate expert, head of Happy House realty agency. “Different banks reacted differently to the change in the key rate. Someone, like Alfa-Bank, immediately stated that since November, even for approved mortgagees, the previous conditions are cancelled, new ones are starting to operate. Both Sber and VTB, for example, have set X dates before which you need to realise your opportunity to purchase real estate. Therefore, there are still mortgage lenders in the secondary market, and transactions under the old conditions are still going on.”

At the same time, Anastasia is sure that this is a temporary “victory” for developers and after the New Year there will be a “reckoning”: the number of potential buyers that developers are counting on today will end, because people who buy primary housing often first sell their housing on the secondary market. “They won't be able to sell the old housing, and the customer flow will dry up," she explains.

Banks, understanding the situation, are starting to launch programmes that allow them to issue mortgages at the previous rates — at the level of 10-12%. Thus, they are trying to maintain customer demand. “They spread the mortgage amount for the following periods. But these programmes are just starting to be launched," says Gizatova.

“Prices in the secondary market are going to fall," Anastasia predicts. “Sellers will be divided into two camps: those who need to sell will be forced to lower prices and make a discount. And the further — the more. Time will work against them. Others will simply remove the apartments from sale and postpone indefinitely.”

In her opinion, those who decide to take a risk and go into a mortgage at new rates with the hope that next year it will be possible to refinance the mortgage will get ambushed. “It is necessary to weigh well all the pros and cons, because it is very risky," she believes. “So far, the Central Bank declares that the key rate will not be significantly reduced next year. It may remain at the level of 14%, and this is not very good for mortgage borrowers.”

A preferential state programme for the secondary housing is not expected. Today, no one needs a secondary housing, they will pay attention to it only when the number of transactions in the primary market drops.

“Then developers will initiate measures at the state level to support the secondary housing, but only in part of those transactions that are related to the primary market. It is still unclear how they are going to do this. Now there is no catastrophe for them, so I would not wait for the appearance of state programmes to support the secondary market in the near future," she says.

At the same time, the key rate has affected not only credit products, it also reflects the situation in the economy: the cost of materials and services is getting more expensive. “Inflation is much higher than previously stated. We all see how food prices are rising. Real estate cannot stay away," the expert argues. “Even if we take with you the costs of repairing or building a house a year ago and now, the difference is already 30% for a number of materials.”

Gizatova does not rule out that while maintaining a high key rate, the launch of new projects will also be postponed by developers — project financing is also becoming expensive for them.

The state supports only manufacturers of new apartments

“Transactions on the secondary market are underway, we see it on the first ten days of November. In general, we are going minus 25% to the same period in October. The same pattern is observed in terms of deposits for secondary real estate," says Marat Gallyamov, the founder and director of the real estate agency Etazhi-Kazan. “But transactions on the secondary market are going on today at previously approved rates at 11-13%.”

Many experts predict a drawdown of the real estate market by 20-30% in the first quarter of 2024. “We still think that the market will not be allowed to fall so deeply," Gallyamov believes.

Sber, for example, has retained the previous mortgage rates for the secondary housing for a period of up to 90 days for those who received approvals before November 2, so even before February 1, 2024 Sber customers will have the opportunity to buy an apartment on the secondary market at the previously approved rates. However, many banks have increased mortgage interest rates from the very first days, as it became known about the increase in the key rate.

There will be no state programme for secondary housing, because it does not affect the economy in any way. The state primarily supports manufacturers of new apartments. “Our banks are directly connected with them, which in one way or another are beneficiaries of a project called escrow accounts. No one is going to subsidise the secondary market. But the state will reduce the key rate and put it in order.”

“If you do not have a previously approved mortgage and you need to buy a house right now, then you need to bargain and buy. Besides, each bank has a rate reduction system. When market rates decrease by 3-4%, the client can write an application to his or her bank for a reduction in mortgage interest due to market conditions. In most cases, the bank meets the customer halfway in order to save the client.” If the bank does not go for a rate cut, you can refinance with another bank. “We have been through this many times: in 2015, and in 2018, and in 2021, when rates were going up and the market was sagging.”

However, if the issue of buying a housing is not burning, then Marat Gallyamov recommends waiting a couple of months. “Most likely, the situation will change in the first quarter," he is convinced.

Monthly payments are going to become unaffordable for 99% population

“Customer demand is as high as before. People understand that tomorrow the mortgage will be more expensive, and it is unlikely that anyone will take it at new rates. Both sellers and buyers understand this and try not to waste time and enter into transactions," Ruslan Khabibrakhmanov, the director of Flat real estate agency, described the situation. “Moreover, the main banks announced that the previous approvals are valid until December 18, and from December 18 the mortgage will be issued at new rates, which are simply exorbitant.”

Already in December, we will see a decrease in demand on the secondary market, but we will reap the main fruits of the increase in the key rate next year. New buildings and low-rise residential buildings with preferential mortgage programmes will be sold in 2024. “If the Central Bank does not bring the rate to an 'adequate' state, we will face a serious decline in the secondary market," Khabibrakhmanov is convinced.