Bank of Russia suggests measures for sustainable mortgage lending development
The Bank of Russia has prepared a report on macroprudential measures aimed at sustainable development in the mortgage lending segment to be discussed with the market community. The purpose of this report is to collect opinions of market participants (banks and other financial institutions) and other parties concerned regarding the regulator’s suggestions on how to enhance the standards in mortgage lending.
The Russian mortgage lending segment preserves a substantial growth potential, and the quality of such loans remains high. However, accelerated growth in mortgage lending may involve new vulnerabilities for the financial system associated with both households’ debt burden and potential housing price volatility against the backdrop of a large proportion of loans with a low down payment.
According to the international experience, in case of risk materialisation loose lending standards may entail large-scale losses in the banking and real sectors and serious social consequences.
In order to maintain a balanced growth in mortgage lending, make macroprudential measures more sensitive to mortgage borrowers’ credit risks and mitigate risks related to an increase in households’ debt burden, the Bank of Russia is considering the possibility to introduce differentiated risk-based buffers for mortgage loans beginning on 1 July 2020. These buffers depend on a borrower’s debt burden and ratio of the mortgage loan principal to the fair value of collateral (loan to collateral value ratio).
The report contains the scale of buffers for mortgage loans suggested by the Bank of Russia.