Mortgage market at VTB slightly increased in May

In the wake of the government's decision to scrap commissions, the issuance of mortgages has seen a modest uptick albeit still considerably lower than pre-existing periods, as per VTB's reports. The Komi Republic saw a 21% surge in mortgaged properties in May compared to April, yet this figure is over 2.5 times less than the issuances recorded in May 2021.

On a nationwide scale, preliminary estimates by VTB suggest that Russian banks have issued mortgages worth over 1.1 trillion rubles in the first five months of the year — a 44% decrease compared to the same period last year. The average loan size has climbed to 4.7 million rubles, up from 4.1 million rubles in 2021.

Russian banks disbursed approximately 264 billion rubles for apartment, house purchases, and construction in May, marking a 7% decline compared to April and almost double the depreciation seen in May 2021. This drop is primarily attributed to seasonal factors, as multiple holidays significantly reduced business activity among Russians. Factors such as high key interest rates, the Central Bank's robust risk policy, and alterations in government support also contribute to the year-on-year dynamics.

Government support continues to serve as the primary catalyst for the market, with its share in the overall issuance volume climbing from 80% to 85% in May. VTB proposed a series of measures intended to boost the volume of government-backed issuances and ensure favorable borrowing conditions, which include increasing subsidies for banks, transitioning to advance payments, abolishing macroprudential add-ons for new issuances, and dismantling the previously amassed macroprudential buffer for mortgages with government support. VTB anticipates that these proposals will be considered in the final decision by the Central Bank and the Government.

Enrichment Data:

Overall:Several key factors have contributed to the ongoing low mortgage issuance rates in Russia. This analysis takes May 2022 as a reference point but extends to critical developments occurring from early 2022 to 2025.

Factors Affecting Low Mortgage Issuance Rates

High Interest Rates and Tight Credit Conditions:
Central Bank Policy: Rapid interest rate hikes by the Bank of Russia in response to inflation and economic instability have led to increased borrowing costs, dampening mortgage demand.
Market Response: With high interest rates persisting until 2025, mortgages have become less affordable for borrowers, slowing the pace of loan issuance.
Reductions in Mortgage Subsidies:
Subsidy Cuts: The Russian government's reduction of mortgage subsidies, which previously supported a significant proportion of mortgage originations, has led to a steep decrease in demand, with pre-sales in new residential developments slicing in half in early 2025.
Market Slump: The combination of subsidy reductions and a market correction from previous peaks has resulted in a decline in both new and secondary market activity. Sellers and buyers are adopting a wait-and-see approach, anticipating better conditions.
Economic Slowdown and Consumer Over-Indebtedness:
Consumer Stress: The Central Bank of Russia has identified over-indebtedness and corporate credit risk as significant vulnerabilities. Loan repayment rates have deteriorated, causing banks to reinforce credit conditions further.
Industrial Decline: The non-military sectors of the economy are experiencing a slowdown or even recession, further reducing household income and confidence, with implications for mortgage demand.

Government Measures to Support Government-Backed Issuances

Loan Restructuring and Reserve Requirement Adjustments
Flexibility for Banks: The Central Bank has urged banks to offer more flexible loan restructuring options, and has relaxed reserve requirements for restructured loans starting in July.
Support for Problem Loans: As of early 2025, Russian banks had restructured a considerable volume of loans (2.3 trillion rubles), but the pace slowed after the initial wave.
Targeted Subsidy and Incentive Programs
Military and Targeted Loans: The government maintains interest rate reductions for particular categories like military mortgages (9%) and support for specific investment projects, but these are limited in scope and do not compensate for broader subsidy cuts.
Expected Rate Reductions: Recovery in demand is projected for 2026 if mortgage rates descend to 12–15%, contingent on broader economic stabilization.
Promotion of New Builds and Discounts
Increased Discounts: Developers have boosted discounts on new builds to 30–35% to entice buyers, although this has not reinvigorated the market entirely.
Government-Backed Projects: Ongoing support for specific government-backed real estate projects is evident, but overall market sentiment remains subdued due to economic uncertainties.

Summary Table

| Factor | Impact on Mortgage Issuance | Government Response/Measure ||------------------------------------------|--------------------------------------------|--------------------------------------------|| High interest rates | Reduces affordability and demand | Targeted subsidies; rate reductions || Reduction in mortgage subsidies | Sharp drop in new mortgage demand | Focus on limited, targeted support || Economic slowdown/consumer stress | Lower household income/confidence | Loan restructuring, reserve flexibility || Developer discounts | Slight boost to new build sales | Increased project discounts |

In light of the ongoing economic instability and high interest rates, the declining trend in investing in real-estate business and mortgage issuance shows no signs of abating, as reported by VTB, with preliminary estimates suggesting a decrease of nearly 44% in the first five months of this year compared to the same period in 2021.
As the government grapples with reducing mortgage subsidies, resulting in a decrease in demand, they have introduced measures to boost government-backed issuances, including increasing subsidies for banks, transitioning to advance payments, abolishing macroprudential add-ons for new issuances, and dismantling the previously amassed macroprudential buffer for mortgages with government support, in the hope of revitalizing the business sector and mortgage market.