If only they paid: why banks reduce requirements for the borrower
The share of mortgage loans for a period of 30 years has doubled over the year and reached 40%, follows from an analysis conducted by the Bank of Russia. The regulator called this phenomenon «extreme». Why did banks start providing mortgages to less creditworthy citizens? What is the danger of programs without a down payment? How much will real estate prices collapse in 2023? About it
The Central Bank calls such an increase in lending terms extreme. Why?
— The fears of the Central Bank are quite understandable. In recent years, affordable mortgage programs have been actively promoted. Due to this, many citizens received mortgage loans, but the sharp reduction in the rate led not to a reduction in price, but to an increase in the price of real estate prices. Each percentage point by which the mortgage rate was reduced led to an increase in the cost per square meter. Due to this, citizens were forced to buy smaller apartments. The loan period has also grown significantly, because the following relationship can be traced here: the higher the cost per square meter, the more annuity payment (monthly loan payment in equal amounts. — «MK»), banks and the borrower are forced to take out a mortgage for a longer period.
This situation has led to the fact that the debt burden on a citizen has not changed, and due to the rise in price of housing, the term of mortgage lending has increased.
The Central Bank sees the following risks. In order not to drop the volume of mortgage lending, banks began to reduce requirements for the borrower. Provide loans to less creditworthy citizens, reduce down payment requirements (due to the high cost of real estate). Programs with a 10% contribution, without an initial contribution, began to appear — this is all alarming for the Central Bank. After all, when real estate prices fall, the collateral of banks will depreciate, which will lead to the fact that the mass of loans will not be secured by collateral. It is not clear how citizens will behave: they can refuse to service mortgage loans, which puts the liquidity of all banks in a precarious position, or they will start selling mortgage real estate, which will lead to an even deeper decline in property prices and depreciation of the bank portfolio.
Will mortgage terms continue to grow in 2023?
— It is hardly possible to say that in 2023 there will be a decrease in the term of mortgage lending, because we do not see a strong drawdown in the real estate market. Developers and government agencies keep the market afloat in every possible way. Therefore, the loan terms will remain the same. And the price of real estate, if it will decrease, it will be insignificant, by 5-10%.
Extending the term of the loan can reduce the debt burden of the borrower?
“Unfortunately, an increase in the loan term does not allow reducing the debt burden on the borrower. This situation allows, perhaps, not to increase the annuity payment that they can afford: payment to income and payment to liabilities. These are the standards that the Central Bank requires from banks in relation to borrowers.
With such terms of a mortgage loan, many will pay off the loan closer to retirement. Although the duration (average full repayment period — «MK») of the portfolio of mortgage loans issued for 30 years will be significantly lower than the nominal period.
The older the borrower becomes, the more difficult it is for him to restore his solvency in case of loss of earnings. Older people take longer to find a new job if laid off.
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