Mortgage payment holidays can start as early as in summer 2019

On 16 April 2019, the Russian State Duma passed in the second reading amendments to laws entitling individual borrowers facing difficult circumstances to mortgage payment holidays.

Mortgage loan restructuring has recently become an issue of particular social importance: in 2018, as many as 10,238 individual mortgage borrowers submitted appeals to the Bank of Russia regarding cases of being unable to fulfil their payment obligations. These appeals accounted for over 50% of all those related to mortgage loans. Compared to 2017, the total received grew by more than 30%.

In order to protect mortgage borrowers’ rights, the Bank of Russia actively participated in drafting a regulation that would entitle a borrower facing certain circumstances to ask the lender to establish a grace period of up to six months. During this time, the borrower, at its own discretion, would either suspend or decrease payments.

The draft regulation stipulates conditions when borrowers will be entitled to mortgage payment holidays:

• if the loan amount does not exceed the threshold set by the Russian Government taking into account regional specifics (maximum 15 million rubles before setting such a limit);
• if the borrower has not previously exercised this right with respect to the same loan agreement;
• if the mortgage is extended with respect to individual’s only housing; and
• if the borrower is facing difficult circumstances.

According to the draft regulation, the term ‘difficult circumstances’ covers events such as: losing your job; being recognised as a group I or II disabled person; being temporarily disabled for a period of over two months; if the borrower’s average monthly income drops by over 30% with average monthly mortgage payments making up more than 50% of it; or if the number of persons dependent on the borrower or group I or II disabled persons under the borrower's care increases at the same time as the borrower's average monthly income drops by over 20% with average monthly mortgage payments making up more than 40% of it.

In turn, according to the draft regulation, the lender must review the borrower's request for a grace period within five business days.

In accordance with the proposed amendments, interest continues to accrue on the outstanding loan balance during mortgage payment holidays. The balance is fixed and must not be increased.

When the grace period is over, the borrower must resume payments in line with the original terms with respect to the payment amount, number of instalments, and their frequency.

Payments that were to be made by the borrower according to the original terms but were skipped due to the grace period will be made at the end of the term of the loan agreement. The loan term will be increased in line with the period of payment holidays.

During the grace period, the mortgaged property cannot be foreclosed, and the fact that the borrower used its right to a mortgage payment holiday will not affect its credit history.

The draft regulation also governs issues related to the circulation of mortgages and mortgage-backed securities in cases where a mortgage payment holiday has been undertaken.

The draft regulation is aimed to boost borrowers’ confidence that they will be able to fulfil their obligations under mortgage contracts.