Mortgages Now Even Harder to Get

VedomostiA Bank of Moscow branch with a sign offering clients the chance to "fulfill their dreams" with a 25-year mortgage.
While real estate prices continue to hold near their highs, banks are preparing for a decline in property values by tightening mortgage requirements, making it harder for consumers to receive a loan.

"I've called all the banks, and each one said they were in the process of renewing their terms and regulations," said Mikhail Sergeienko, a consultant who until recently was seriously considering taking out a loan for an apartment.

"Basically, they've all stopped giving mortgages."

Industry participants are quick to acknowledge that the situation has rapidly shifted in the last few weeks, as the global liquidity squeeze hits home for domestic banks.

"The consumer credit landscape is changing," said Yevgeny Chepenko, vice president of European Trust Bank, speaking at a mortgage conference on Wednesday.

"You won't find zero or 10 percent down payments on the market anymore."

Banks need to tighten requirements "in order to offset the risk of falling housing prices," said Alla Tsytovich, Bank of Moscow's managing director of retail business.

Some experts have predicted a decline of up to 30 percent in Moscow's residential property market in the wake of the global financial crisis.

Average down payment terms now range from 20 percent to 30 percent of the price of a property; interest rates for ruble-denominated mortgages are upward of 20 percent, according to Chepenko.

Banks have also toughened other requirements, including doubling the minimum salary required for obtaining a loan.

"To get a mortgage in Moscow, one must earn no less than $4000 a month, twice as much as the average middle-class salary," said Boris Derevyagin, deputy head of the Indicators of the Real Estate Market analytical center.

At least one bank has adopted another strategy. RosEvroBank, a mid-sized lender, announced last Friday that it has already started asking borrowers for an early repayment on their mortgages.

The bank said it was worried about a forecast decline in the value of the apartments under their mortgages.

"If the collateral becomes worthless, the bank has to make the borrower compensate for that," RosEvroBank's chairman Ilya Brodsky said in a statement last week.

"Interest rates now are much higher, so the bank might say, 'We are reworking interest-rate levels, and if you disagree and don't want to pay them you can redeem your mortgage ahead of time,'" said Natalya Orlova, an analyst at Alfa Bank.

At last Wednesday's mortgage conference, Oleg Ivanov, vice president of the Association of Regional Banks of Russia and a member of the State Duma's expert council on financial markets, said there was little relief in sight for both lenders and those trying to get loans.

"We're in the deepest part of the crisis right now. In the next few months, the entire mortgage sector will start feeling this really badly."