New Rate Hike Rally: Why Banks Raised Mortgage Interest Rates

The largest Russian banks have begun to sharply raise mortgage rates, despite maintaining the key rate

Russia’s largest banks have launched a new rally to raise mortgage rates. The last time such a picture was observed was in the second half of December last year, when the Central Bank increased the key rate to 16%. At that time, almost all major banks in the country increased mortgage lending rates — from 0.2 to 3 percentage points. However, now banks are raising rates while maintaining the key one.

RBC-Real Estate found out which banks raised mortgage rates, as well as the reasons for the increase in interest on housing loans.

Which banks have increased mortgage rates

On June 7, 2024, the Central Bank did not raise the key rate for the fourth time in a row, keeping it at 16%. Despite this, many large banks began to raise mortgage interest rates.

After the Central Bank meeting, mortgage interest rates (by an amount from 0.5 to 2.8 percentage points) were increased by 12 banks from the top 20: Sberbank, VTB, Dom.RF”, Promsvyazbank, Uralsib, Ak Bars, Credit Bank of Moscow, Alfa-Bank, T-Bank (formerly Tinkoff), Sovcombank, Ural Bank for Reconstruction and Development (UBRiR) and Transcapitalbank.

Some large credit institutions have raised mortgage rates more than once. So, VTB has done this three times since the end of May, increasing the mortgage rate to 19.5% per annum for the new construction market and for the secondary market. Sberbank also increased interest rates on housing loans three times, stopping at 19.5% for the primary market and 19.8% for the secondary housing market.

Banks from the top 20 that raised mortgage rates after the June meeting of the Central Bank

Data: “House.RF” and releases of major Russian banks

According to “Dom.At the end of June 2024, the weighted average mortgage rate for new buildings in the top 20 Russian banks is 18.32% per annum, on the secondary market – 18.49%, for the purchase of a finished house — 18.79%, for the construction of a private house — 18.19%, and the refinancing rate is 18.45%.

Why mortgage rates are rising

The increase in mortgage rates in Sberbank is explained by an increase in the yield on federal loan bonds (OFZ) against the background of the high key rate of the Central Bank. VTB explained the increase in mortgage rates by the growing cost of money on the market. “Now the dynamics of the key rate and the long—term cost of borrowing OFZ are multidirectional: the yield on federal loan bonds has been growing for several months, while the key rate has not changed,” the credit institution explained.

According to experts, banks’ decisions to increase mortgage interest rates are related to forecasts for further growth of the key rate. For example, the Analytical Credit Rating Agency (ACRA) believes that in order to maintain business profitability, the country’s largest banks are increasing rates on housing loans. And Finam Financial group believes that banks are raising mortgage rates on expectations of further tightening of the monetary policy of the Central Bank of Russia.

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