High-risk mortgage programmes with extremely low interest rates to be limited

Relevant amendments were made to Bank of Russia Regulation No. 590-P.

Recently, the so-called ‘subsidised mortgages from the developer’ at extremely low non‑market-based interest rates of up to 0.1% have become very widespread. Developers can offer these low interest rates through the overpricing of the purchased apartment by 20–30%. Developers then pay this difference to a bank as a fee to compensate for the decrease in the bank’s revenues. These programmes involve risks for both borrowers and banks. Besides, they distort the overall statistics, which ultimately prevents all the parties from making prudent decisions. The Bank of Russia’s regulation will limit the spread of such schemes and help reduce the risks.

The requirement for increased provisions will be applicable to mortgages with effective interest rates considerably below the market level (the market interest rate, or MIR) which is deemed to be equal to yields on 10-year federal government bonds averaged for the three calendar months preceding the issue date (if a loan is issued under government programmes, this amount shall be calculated net of the subsidy). Provisions shall increase by 30% if the EIR is lower than the MIR by over 1/5 and by 50% if the EIR is lower than the MIR by over 1/2.

To ensure that the new requirements are applied uniformly, beginning on 7 April 2023, the Bank of Russia publishes the MIR as of the first day of the reporting month on its website on the first business day of each month.