Bank of Russia receives more appeals about credit histories and less complaints against OSAGO

Financial institution of Russia raises macroprudential necessities for mortgage loans

The Financial institution of Russia Board of Administrators determined to elevate risk-weight add-ons for mortgage loans issued from 1 August 2021.

In making its choice on risk-weight add-ons, the Financial institution of Russia Board of Administrators was guided by the following.

Since mid-2020, the development in residential actual property costs has considerably accelerated, which significantly exceeded the enhance in family revenue. Based on the information for 2021 Q1, the development in costs for residential actual property in the Russian Federation as a entire was 13.6% in the secondary market in annualised phrases, and 17.6%1 in the major market. In some areas, the value enhance exceeded 20% over 12 months. In this example, the significance of the dimension of mortgage down funds has elevated, as a result of these funds mirror the diploma of loan collateral2 and characterize one of the key danger elements in mortgage lending. The diploma of loan collateral limits banks’ dangers related to a potential adjustment of costs for residential actual property. Moreover, the down fee correlates with the frequency of defaults on loans and characterises debtors’ solvency.

Banks steadily enhance the proportion of mortgage loans with a low down fee (under 20%). That is particularly typical of the major mortgage market, which is in half linked to the circumstances of preferential authorities mortgage lending programmes with the minimal down funds at 10-15%. In the major mortgage market, the proportion of loans with a down fee not exceeding 20% in the complete worth of issued loans grew from 24% in 2020 Q2 to 45% in 2021 Q1.3 Within the secondary mortgage market, the enhance in the proportion of such loans over the specified interval is negligible, i.e. from 30% to 33%.

The annual development of excellent loans in the mortgage loan portfolio denominated in rubles stay sustainably excessive at 23% as of 1 April 2021.4 In these circumstances, banks are quickly accumulating loans with a low down fee, which raises their vulnerability to potential shocks.

To mitigate the dangers of mortgage lending related to a low down fee, the Financial institution of Russia Board of Administrators determined to elevate risk-weight add-ons for mortgage loans with the loan to collateral worth ratio from 80% to 85%. The new values of add-ons will vary from 50 pp to 100 pp relying on the worth of debtors’ debt to revenue ratio and will likely be utilized to loans issued from 1 August 2021.

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Danger-weight add-ons on ruble mortgage loans issued from 1 August 2021 to people for functions not associated to their enterprise actions, the place the efficiency of debtors’ obligations is secured by the collateral of residential and (or) non-residential premises

Add-on, pp Debt to revenue ratio of debtors, %
No DTI (0; 30] (30; 40] (40; 50] (50; 60] (60; 70] (70; 80] 80+
Ratio of the principal to the honest worth of the collateral (loan/collateral) (80;85] 70 50 50 50 70 80 90 100
Memo merchandise: present values of add-ons 50 20 30 40 50 60 70 80

Danger-weight add-ons on ruble mortgage loans issued from 1 August 2021 to people for financing below fairness development agreements

Add-on, pp Debt to revenue ratio of debtors, %
No DTI (0; 30] (30; 40] (40; 50] (50; 60] (60; 70] (70; 80] 80+
Ratio of the down fee to the honest worth of the collateral (down fee/collateral) (15;20] 70 50 50 50 70 80 90 100
Memo merchandise: present values of add-ons 50 20 30 40 50 60 70 80

The enhance in add-ons will assist cut back the incentives for banks to increase lending by issuing loans with a low down fee to debtors, and will even pace up the restoration of the macroprudential buffer on mortgage loans and guarantee banks’ resilience to potential stress eventualities.

Provided that debtors’ solvency largely will depend on their debt to revenue ratio, in case of a additional enhance in this ratio and the persistent acceleration in the development of actual property costs, the Financial institution of Russia might additionally take into account setting risk-weight add-ons for loans with the down fee exceeding 20% and a excessive worth of debtors’ debt to revenue (DTI) ratio.5 In 2021 Q1, loans of debtors with a excessive DTI ratio (greater than 80%) accounted for 24% of the complete worth of issued mortgage loans.

1 Based on Rosstat.
2 LTV ratio (loan/collateral).
3 Based on Reporting Type 0409704.
4 Based on Reporting Type 0409316 and Reporting Type 0420863 containing data on excellent quantities below securitised mortgage loans. Together with acquired rights of declare.
5 The implementation of this measure was deliberate for 2020, however it was cancelled afterwards due to the pandemic of Covid-19 (see the session paper Financial institution of Russia Measures to Make sure the Balanced Improvement of Mortgage Lending, December 2019).

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