Bank of Russia to increase macroprudential requirements for mortgage loans
Effective from 1 March 2024, the Bank of Russia is going to raise risk-weight add-ons for mortgage loans in order to limit individuals’ over-indebtedness.
In making this decision, the Bank of Russia Board of Directors was guided by the following.
In mortgage lending, lending standards are significantly deteriorating against the backdrop of soaring lending.1 Over the two years, the proportion of loans issued to borrowers with the debt service-to-income ratio (DSTI) exceeding 80% nearly doubled and equalled 47% in 2023 Q3. Housing loans with a low (below 20%) down payment reached 50% of all mortgages granted.
The wide use of subsidised programmes2 available only for new housing has resulted in soaring prices in the primary market and created a gap between such prices and the prices in the secondary market (the average difference in prices across Russia reached 42%). If the borrower needs to sell the pledged housing, its price will be substantially lower than the price at which it was purchased and may not cover the borrower’s debt in the event of a low down payment.
Since 1 October 2023, the Bank of Russia has substantially increased macroprudential add-ons for mortgage loans in segments with a low down payment and a high DSTI. Coupled with the increase in requirements for a down payment under government mortgage programmes (from 15% to 20%) since 20 September 2023, this resulted in a significant decrease in the proportion of loans granted with a down payment of below 20% from 50% in Q3 to 15%3 in October—November 2023. However, the proportion of loans granted to borrowers with the DSTI of more than 80% remains high — around 50%.
Conservative requirements for the down payment are important for ensuring the quality of the mortgage. This reflects the borrower’s ability to accumulate funds and service the loan. It is crucial that the down payment should be formed from the borrower’s own funds. However, the proportion of mortgage loans enabling borrowers to use unsecured consumer loans for financing the down payment is gradually growing (according to estimates, it equalled 6.5% in October). This creates risks of excessive debt burden on individuals and a deterioration in the portfolio quality for banks.
In order to prevent such practices, limit the mortgage growth by engaging highly indebted individuals and encourage banks to use official information about the borrower’s income for assessing the DSTI, the Bank of Russia will additionally raise risk-weight add-ons for loans with a high DSTI from 1 March 2024.
Risk-weight add-ons for mortgage loans granted from 1 March 2024 and secured by claims under equity construction agreements
| Add-on | DSTI range, % | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| No DSTI4 | Above 80, DSTI has not been calculated5 |
||||||||
| Down payment, % | [0;10] | 9.0 | 9.0 | 9.0 | 9.0 | 9.0 | 9.0 | 9.0 | 9.0 |
| (10;15] | 3.0 | 2.5 | 2.5 | 2.5 | 3.0 | 4.0 | 5.0 | 9.0 | |
| (15;20] | 1.5 | 1.0 | 1.0 | 1.0 | 1.5 | 2.0 | 3.0 | 8.0 | |
| (20;30] | 1.0 | 0.5 | 0.5 | 0.5 | 1.0 | 1.5 | 2.0 | 7.0 | |
| (30;50] | n/a | n/a | n/a | n/a | n/a | n/a | 1.0 | 6.0 | |
| (50;100) | n/a | n/a | n/a | n/a | n/a | n/a | 0.5 | 5.0 | |
Risk-weight add-ons for mortgage loans granted from 1 March 2024 and secured by residential real estate
| Add-on | DSTI range, % | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| No DSTI | Above 80, DSTI has not been calculated |
||||||||
| LTV,6 % | (0;50] | n/a | n/a | n/a | n/a | n/a | n/a | 0.25 | 2.0 |
| (50;70] | n/a | n/a | n/a | n/a | n/a | n/a | 0.5 | 3.0 | |
| (70;80] | 0.25 | n/a | n/a | n/a | 0.25 | 0.5 | 0.75 | 3.5 | |
| (80;85] | 0.75 | 0.5 | 0.5 | 0.5 | 0.75 | 1.0 | 1.5 | 4.0 | |
| (85;90] | 1.75 | 1.5 | 1.5 | 1.5 | 1.75 | 2.0 | 2.5 | 5.0 | |
| Over 90 | 4.0 | 4.0 | 4.0 | 4.0 | 4.0 | 4.0 | 4.0 | 7.0 | |
The increase in the macroprudential add-ons will help improve lending standards and ensure more balanced mortgage growth rates. If the situation stabilises and credit institutions return to more conservative lending standards, the Bank of Russia will be ready to ease the requirements for macroprudential add-ons in mortgage lending.
1 As of 1 December 2023, the growth of the mortgage portfolio over 12 months equalled 35% (adjusted for securitisation).
2 Of the total amount of granted mortgage loans, subsidised and family mortgage accounted for 49% in 2023 H1, 63% in 2023 Q3 and 72% in October—November 2023.
3 Preliminary evaluation based on a survey of major banks.
4 In cases when credit institutions have the right not to calculate the DSTI.
5 In cases when credit institutions have not complied with the obligation to calculate the DSTI, including due to technical failures in information systems.
6 The ratio of the mortgage loan principal to the fair value of the collateral.
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