Buyers Are Balking at High Mortgage Prices

Demand for mortgages fell last month for the first time in years, banks said. For some, excessively high mortgage prices squashed any hope of purchasing an apartment, while other potential homeowners chose to wait out the price boom in hope of a downturn.

"For the first time, we have run up against falling demand," said Sergei Tropin, head of marketing and retail services for International Moscow Bank, or MMB.

Demand for mortgages usually increases in the fall, but the situation this year is atypical, said Maria Serova, chief of credit development for Vneshtorgbank 24. Almost all the major market players have seen a drop in demand, she said.

Nine of 10 leading mortgage credit banks surveyed by Vedomosti said they had seen a decline in mortgage applications from August to September.

Mortgage applications to the Bank of Moscow and MMB almost halved, while CIT Finance saw a drop of about 30 percent and Vozrozhdeniye Bank of 25 percent.

The remaining banks averaged 10 percent declines. Only Absolut Bank reported an increase in demand.

Realtors also recorded declining demand. Irina Radchenko, president of Laureal Realty, said her firm had received 530 calls in September, down from 700 in August. Sergei Maxotkin, mortgage credit manager of MIAN, said the number of calls from people interested in apartment mortgages remained at August levels, rather than the 200 percent to 300 percent increase the agency usually sees in September. The number of calls also fell at Best Realty, said company management chairman Grigory Poltorak.

Bankers blamed rising real estate prices for the problem. In September, prices grew so high that even with the maximum credit allowable from banks, many buyers were left with too little to purchase an apartment, said Alexei Guryanov, chairman of the board for Russian Mortgage Bank. Similar complaints were expressed by Anna Kaminskaya, chief of retail business for Sobinbank, and by Oleg Skvortsov, vice chairman of management for Absolut Bank.

Apartments prices have risen by an average of 65 percent since the beginning of the year, reaching $4,000 per square meter. As a result, Guryanov said, the minimum mortgage has risen from $50,000 last year, to about $120,000 currently. Monthly installments on such a mortgage can exceed $1,300 -- meaning that households that apply must earn at least $2,700 per month. Most banks limit monthly payments to 45 percent to 50 percent of a family's combined income, although sometimes it reaches 55 percent to 60 percent.

Last year, mortgages were affordable for people earning at least $2,000 per month, but now the minimum required salary is $3,000, Guryanov said. Using the mortgage calculator on one bank's web site, a reporter compared credit terms on two different apartments. The first cost $150,000, as it was virtually impossible to find anything cheaper in Moscow. At that price, with 10 percent down and a 25-year mortgage at 11 percent annual interest, monthly installments totaled $1,370, for which a family should have combined earnings of at least $2,500 per month. For an apartment costing $200,000, with 10 percent down and a 15-year mortgage, monthly payments equaled $2,000, requiring a monthly family income of at least $4,000.

Housing credits rose by 53 percent for the first six months of this year to 192 billion rubles ($7.13 billion), of which 105 billion rubles ($3.9 billion) were mortgages, double the previous figures, according to Central Bank figures. Currently 663 organizations offer mortgages.

The decrease in mortgage applications is due to an expectation among buyers that housing prices will fall, said Skvortsov and Radchenko. They are convinced, however, that prices will not be coming down any time soon.

Tropin said, however, that buyer expectations played no role in the phenomenon. He said a decrease in available housing coupled with an increase in the number of banks offering mortgages accounted for the decline.