Bank of Russia sets macroprudential requirements for new housing mortgages with low down payments

From 1 December 2022, the Bank of Russia sets a risk-weight add-on for mortgage loans in rubles issued for financing under equity construction contracts (hereinafter, loans for ECCs) with a down payment of no more than 10%. The add-on equals 2.0, regardless of a borrower’s debt service-to-income (DSTI) ratio. This measure is aimed at limiting the practice of issuing loans for ECCs with a low down payment.

Making this decision, the Bank of Russia Board of Directors considered the following:

From 1 March 2022, the Bank of Russia cancelled all add-ons for loans for ECCs in order to support banks and promote housing construction financing. However, the ‘limiting’ macroprudential add-on of 2.0 remained applicable to existing housing mortgages with a down payment of less than 10%.

During 2022 Q2, banks almost never issued loans for ECCs with a down payment below 10%: such loans accounted for as little as 0.3% in 2022 Q2 (vs 2.6% in 2022 Q1).¹

In recent months, developers started to actively advertise mortgage programmes for new housing without a down payment, including with repayments in instalments. However, according to banks’ statistics, borrowers applying for loans with a low down payment are characterised by increased credit risk. Pursuant to the effective regulation,² the calculation of a down payment only takes into account the borrower’s own funds. Borrowings, instalments, and/or commissions from developers may not be included in the calculation. If the share of loans without a down payment in the total amount of issued loans increases, banks’ loan portfolios will be more vulnerable to potential shocks.

The measure approved will limit the practice of issuing loans without a down payment and ensure the expansion of mortgage lending without accumulating excessively high risks in the banking sector.

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