OREANDA-NEWS  From May 2023, the Bank of Russia (CB) will tighten mortgage issuance in the country. The central bank has decided to increase the allowances to the risk coefficients for housing loans, according to a statement on the website of the financial regulator.

As explained in the Central Bank, these surcharges take into account the overestimation of the cost of apartments in the primary housing market when the buyer uses a mortgage. It is specified that the measure should limit potential risks for banks and borrowers. The financial regulator also believes that the proposed method of regulation is able to solve the current problems in the housing market and prevent the emergence of a price bubble.

"The increase in surcharges may lead to a slight slowdown in mortgage growth, but the result will be a more balanced growth in the housing market, the relief of the risks of a price bubble, the formation of capital reserves by banks in case of increased losses on mortgage loans," the Central Bank said. The Bank of Russia added that they are ready to reduce surcharges if the use of risky schemes in mortgages stops and lending standards improve.

The Central Bank understands risky schemes as joint mortgage programs of banks and developers who offered loans at extremely low rates — about zero percent per annum. The Central Bank previously warned that such rates are achieved by inflating the price of an apartment by the amount of commission (up to 20-30 percent), which the developer pays to the bank to compensate for the loss of income. In addition, if necessary, it will be difficult to sell housing (for example, in case of loss of income or relocation) without a loss — the proceeds may not be enough to repay the loan.