Russia tries to save the housing sector

Russian President Vladimir Putin extended an 18-month preferential mortgage scheme yesterday, December 15, providing a lifeline to a struggling sector of the economy and promising low rates for residents of the Ukrainian regions annexed by Moscow in October.

Analysts warn that an end to state mortgage subsidies would spell trouble for the property sector, after Putin’s partial mobilization order in September led to labor shortages and a collapse in demand, delivered another economic shock for lenders still suffering from perennially high rates this year.

“We will reduce the preferential mortgage mechanisms, but we will do it smoothly,” Putin said in a televised meeting with officials. “We will extend preferential mortgages throughout Russia until July 1, 2024.”

The prime rate will go from 7 to 8 percent, Putin said, adding that families with at least two children must have access to 6 percent mortgages.

The average annual mortgage rate in the third quarter of this year was 10.49%, according to an index from Banki.ru.

Shares in Russian developers turned positive on the news, outperforming the declining broader Russian stock index, a much-needed boost for the sector.

“The slowdown started in October, as some creditworthy borrowers moved or abandoned, and banks tightened lending requirements,” said Evgeny Suvorov, an economist at CentroCreditBank.

The Bank of Russia raised its official interest rate to 20% shortly after Moscow began its military invasion of Ukraine. Since then, it has cut rates six times and is expected to keep it at 7.5% in its announcement today.