Bank of Russia to discuss risks of mortgages with floating interest rates and potential regulation
The Bank of Russia has unveiled a consultation paper exploring potential regulatory approaches to mortgage loans with floating interest rates, aiming to protect borrower interests and prevent financial stability risks in the future.
The report analyses the rationale behind the use of floating interest rates on mortgage loans and their risks, exploring global practices and outlining possible changes in regulatory frameworks in the area.
With credit costs currently at historic lows in Russia, banks are increasingly interested in offering floating-rate products in the long term. Global practices suggest however that such loans carry a higher level of risk. Should floating-rate mortgage loans become widespread, rising interest could lead to excessive growth in debt burdens of a considerable part of borrowers.
Corporate lending at floating interest rates is already quite common in Russia. There is no legislative ban on such lending to individuals, either. Yet, the proportion of such loans to individual consumers remains marginal.
According to the report authors, clear regulatory framework options should be in place before the market for retail loans with floating rates becomes large-scale, enabling factors that may bring social and financial stability risks.
The Bank of Russia looks forward to any comments and suggestions about the consultation paper, as well as answers to its questions by no later than 1 April 2021.