Program to Help Mortgage Borrowers will Only Partially Improve the Situation

21 august 2017 | Rossiyskaya Gazeta

The government is resuming its program of offering help to mortgage borrowers. The maximum amount of financial aid offered for each restructured mortgage is 30% of the remaining principal balance (but no more than RUB 1.5 million), which should allow over 1,300 families to pay off what they owe the banks and hold on to their residence. A total of RUB 2 billion has been allocated to the program. "This can only partially improve the situation with foreign currency-denominated loans," the Analytical Center's expert Natalia Safina told a Rossiyskaya Gazeta correspondent.

Natalia Safina
Natalia Safina
Department for Expert Analytics

"As of July 1, the amount of overdue debt on foreign currency-denominated mortgages is more than 9 times greater than the amount of funds allocated to the aid program while the number of borrowers who have trouble paying off their foreign currency-denominated mortgages exceeds 4 thousand," the expert explained. Seeing how since late April 2017 the ruble has depreciated by almost 8% relative to the dollar, borrowers with dollar-denominated debt are once again facing the problem of an increase in the ruble-denominated monthly payments on their debt, the newspaper claims.  

Borrowers that have both foreign currency- and ruble-denominated mortgages are eligible to take part in the extended state program of offering financial aid to mortgage payers; however it is primarily foreign currency-denominated mortgages that the program targets, Ms. Safina explained.  Thus, one of the prerequisite conditions for applying to the program is a dire financial situation of the borrower, which is determined on the basis of 2 factors:  the total household income of the borrower over the past 3 months after paying the target monthly payment on the loan must not exceed twice the amount of the living wage per each family member; the target monthly payment for the loan must have increased by at least 30% on the amount of the target monthly payment for the date the loan agreement was entered into.

Borrowers with foreign currency-denominated mortgages who purchased real estate as an investment are not eligible for the program: during the time that the ruble was appreciating and later when the Bank of Russia was manually controlling its exchange rate and the real estate prices were growing, low interest rate mortgages denominated in foreign currency seemed like a bargain investment. The average foreign currency-denominated mortgage was RUB 7.81 million in 2010–2013 while the average ruble-denominated mortgage was only a fifth of that amount at RUB 1.39 million, according to Bank of Russia statistics. However, as the 2014–2015 events demonstrated, investments with obligations denominated in a foreign currency were very high risk: a lot of borrowers didn't just lose their collateral, but even after having had their apartment foreclosed on, they still remained indebted to the bank. The banks wouldn't restructure the loans voluntarily without some kind of compensation from the state, the newspaper notes.

Source: Rossiyskaya Gazeta