The mortgage market is on the brink of collapse, banks have sharply tightened lending terms, raised rates and effectively halted loans for new buildings. Experts discuss whether banks can raise rates on already issued loans and demand early repayment, and how much state measures and 60 billion rubles for AIZhK will help the market. The article explains why mass foreclosure of apartments is unlikely, and what alternatives to mortgages developers are already starting to offer.

According to Rosstat, over the past two weeks, of the 400 banks that provided mortgage loans, no more than 15 have remained in the market. And even the largest of them (Sberbank, VTB 24) have tightened lending conditions and sharply raised rates. Financial institutions are abandoning risky operations, above all long-term housing lending. The main question now is whether rates on already issued mortgage loans will be raised.
New buildings were the first to be hit because bankers feared that, in conditions of a liquidity crisis, developers would not be able to complete their projects. There is no need to look far for evidence of developers’ problems—practically all construction sites in Moscow are idle. It is also clear that the pace of commissioning new housing will remain only a paper appeal. This means that in 2–2.5 years the housing shortage will reach its peak and price growth will be inevitable.
Of course, this depends on many factors, among which mortgage lending occupies a special place. “There is no primary mortgage market at all right now; such lending is dead,” says Anatoly Kraynikov, a representative of MDM Bank.
If we assume that the prohibitive conditions for obtaining a housing loan today amount to 20–23% per year secured by existing real estate and a number of other hard-to-meet requirements, then the expert is right.
Few people will be able to buy an apartment at such rates. Moreover, 20–23% is not the final price. The borrower must also pay fees for reviewing the application, issuing the loan, and insure life, health, and the apartment being purchased itself. The affordability of such lending conditions is estimated at 1%.
The future of mortgages now largely depends on the actions of the Agency for Housing Mortgage Lending (AHML), to which the government has allocated 60 billion rubles. Experts believe that financial injections should lead to a sharp change in the mortgage market situation, at least toward stabilizing lending volumes at the level of early 2008.
“Everything depends on how the anti-crisis measures announced by the government are implemented,” Evgeny Nadorshin, an analyst at Trust Bank, explains to VZGLYAD newspaper. “If they are not implemented, the lending market faces collapse.”
According to most real estate market specialists, a collapse like the one that happened in the United States is definitely not threatening us. In America, about 20% of borrowers were unable to repay their mortgages, whereas here only 2% fail to repay debts. On the other hand, the volume of defaults is growing, and experts believe that for most families the hardest period of mortgage payments falls in the 5th to 7th years of the loan. Given that our mortgage market has been developing since 2002, a crisis can be expected in the next year or two.
Another matter is that bankers, being in limbo today, may demand early repayment of the mortgage loan or raise rates on already issued loans.
As Agvan Mikaelyan, CEO of Finexpertiza, told VZGLYAD newspaper, “there will be no mass seizure of apartments from debtors. It is now obvious that over the next year the decline in real estate prices will be within 30–50%, due to the lack of clear prospects for mortgage lending. Incidentally, in recent years the level of real estate prices has been supported primarily by mortgage loans, and this was with falling demand. In such conditions, banks will not be able to sell seized apartments even at the loan value.”
All experts agree that there will be losses from defaults on already received loans, but it will be possible to forecast their level only in 2–3 months, when the current “uncertain time” has passed.
To demand early repayment of a loan, the bank must prove that some force majeure event has occurred, for example a collapse in real estate prices.
“The price must fall by more than a third, which is unlikely to happen,” says analyst Mikhail Barinov of Service-Expert. “To prove this, some independent assessment and an analysis of the market as a whole will be required, and for the bank this is very costly, and experts will not dare to make such assessments, since the housing market is heterogeneous and a price drop in one housing category does not entail a drop in another.”
It should be noted that all cases of possible early repayment are specified in every standard loan agreement. First of all, this includes using the housing for purposes other than intended (for example, organizing an underground workshop or a brothel), late payments or refusal to make them, etc.
“Under our legislation, no one can unilaterally force a borrower to repay early,” Moscow Bar Association member Ekaterina Kolyada told VZGLYAD newspaper. “If this is not specified in the loan agreement, the bank has no right to demand early repayment of the loan.”
She advises borrowers to look at the terms of their agreement, because they differ from bank to bank, and if the bank does not have the right to demand early repayment, the borrower can challenge the bank’s demand in court and obtain a ruling in their favor.
The same applies to the bank’s right to raise rates on an already serviced loan.
“If banks do decide to raise rates, it will not be a mass phenomenon and the increase will most likely not be significant,” Finexpertiza analyst Natalya Borzova told VZGLYAD newspaper. “In the event of such force majeure and an inability to repay, banks will demand the realization of the loan collateral, that is, the mortgaged apartments, and will try to sell them.”
Apparently, the debtor’s guarantors will also have to answer, but in each case this will be decided behind closed doors and without loud publicity campaigns in the press. The fact is that in today’s situation of balancing on a knife edge, the banks themselves will in every possible way demonstrate their unsinkability and avoid any negativity, into which any scandal with debtors quite fits.
“It is unlikely that this will become a mass phenomenon, and a strong increase in lending rates on previously issued mortgage agreements will most likely not happen,” Agvan Mikaelyan tells VZGLYAD newspaper. “Mortgage programs are one of the most serious levers developers use to pressure the state on issues of government support for the banks themselves.”
Thus, since experts consider mass foreclosure on debtors’ apartments unlikely, the appearance of such apartments on the market will not be significant. The projected correction within 20–30% is due to the lack of funds among developers to continue construction and among private individuals due to the absence of clear prospects for mortgage lending. In principle, the fact that mortgages will someday resume is beyond doubt, if only because the government promises financial support to banks.
But, as is known, nature abhors a vacuum, which means that for now, instead of the mortgage lending that has sunk into oblivion, other instruments will appear that will somehow make it possible, in conditions of high prices and growing demand, to attract homebuyers.
For example, direct apartment sales by developers and interest-free installment plans may become such instruments—this is the view of some developers and market analysts interviewed by VZGLYAD newspaper. The scheme is simple: the down payment ranges from 30 to 80% of the cost of the housing being purchased, depending on the installment period. This period is set at 1–3 years, and the announcement says that the developer plans to develop installment offers for longer terms as well.
For example, Mosstroyrekonstruktsiya announced interest-free installments on the condition that at least 10% of the apartment price is paid. City – XXI Century is ready to offer discounts to buyers who can purchase an apartment now. Don-Stroy has also announced sales on investment terms.
According to VZGLYAD newspaper’s monitoring, realtors do not yet see a decline in demand for Moscow real estate and believe that the slight reduction in the number of purchase and sale transactions is a result of both buyers and sellers taking a wait-and-see position. “The other thing is that this will inevitably be followed by a surge in demand that developers will not be able to satisfy. Consumers will feel the shortage of supply as early as summer 2009,” predicts Pavel Epikhin, an expert at Kvartal Estate. “The most negative thing for the market will be not even another round of apartment price growth as a result of their shortage, but the lack of quality real estate and the absence of any real choice.”