Has housing on credit become more accessible?

The belief that owning an apartment on credit is better than renting is one of the most expensive. Now it is as expensive as 20 years ago, when loans were given in foreign currency for two years at 25% per annum.

The development of mortgages has not made decent housing accessible to everyone
Photo: Yu. Feklistov / Ogonyok photo archive

NADEZHDA PETROVA

"The Duma interferes with Sberbank"

The alternative was simple: if the law “On Mortgage” was adopted before the end of 1994, Moscow Sberbank would begin to lend money to citizens under the housing lending program. Everyone benefits: “the government solves the housing issue, the bank finds an object for reliable investment,” citizens receive a “cheap loan for housing” in the amount of up to 70% of the cost, for a period of more than five years. And if the law is not adopted, then, Dengi reported in September 1994, “Sberbank will not give loans.”

The second scenario looked much more realistic. True, the issue of mortgages was included in the State Duma’s work plan for the fall, but in those days it was customary to engage in legislative activity slowly and with dignity. Therefore, the first reading of the draft law on mortgages passed only in July 1995, and the second and third readings in 1997. And the self-esteem of the State Duma of the second convocation became a decisive argument when in June 1998, one of the authors of the document, deputy Ivan Grachev, called for “immediately overcoming” the presidential veto on the bill. He, of course, also explained to his colleagues that an imperfect law on mortgages (the president was not satisfied with the ban on mortgaging farmland) was better than none at all: the conciliation commission worked for about a year without the slightest result, and the process threatened to continue endlessly.

The sluggishness of legislators, which Dengi complained about back in 1994, meant that the chances of citizens getting a loan to buy a home remained slim, and the banks that were willing to provide such a loan could be counted on one hand. In May 1996, the president of the Universal Financial Company (UFC), Boris Kaskov, said that in two years, “in Moscow, banks issued at least 1.5 thousand loans for the purchase of housing.” By 1997, UFC could boast of 20 contracts per month. This is a lot: Probusinessbank reported about five. And of course, it was not a mortgage at all.

"You need to have friendly relatives"

An apartment purchased with credit money was transferred into the ownership of the creditor bank or its subsidiary, which, in turn, entered into a lease agreement with the borrower with the right to buy. But even such registration of ownership rights, as practice has shown, did not guarantee anything: “The borrower can terminate the agreement with the subsidiary for the sale of the apartment. Then the apartment will become his property, and regardless of whether the borrower pays the debts, the bank will not be able to evict. Moreover, the borrower even has the right to sell the apartment."

For conscientious borrowers, the scheme was also not very comfortable. Bank failures were not uncommon, and although the banks themselves and their partners indicated that in this case, “in court, a lease with option to buy makes it possible to consider the case in favor of the tenant rather than the owner,” the judicial prospect did not seem attractive to clients. “It may happen that a bank or a subsidiary goes bankrupt. And then you will not see either an apartment or money,” Dengi warned. On top of that, banks did not allow people to register in the apartment until the loan was repaid - after the borrower registered, they would not be able to dispose of the collateral. So for a legal stay in Moscow, the buyer “needed to have either a second apartment or wealthy and friendly relatives. And this, as you understand, happens extremely rarely.”

However, the greatest rarity remained citizens who were able to repay a loan issued at 25% per annum in foreign currency in two years. These were standard conditions for that time. If desired, of course, it was possible to take out a loan for a shorter period and at high interest rates (up to 58%), a relatively cheap option appeared only at the end of 1994 - ten-year loans from Stolichny Bank at 19.5% per annum in foreign currency, but other banks did not follow suit. Borrowers in 1996 still told Denga about loans taken out for two years at 24-25%, because “living in your own apartment is much better than paying rent.” This conviction was costly: those interlocutors of Denga paid an amount five times the rent for housing every month.

“There is no one to distribute loans yet”

The authorities, of course, understood that things would not work this way: in order to solve the housing problem of millions, it was necessary to reduce rates. The time and place for this were chosen ideally - May 1996, the election campaign, the president’s meeting with large families: “Boris Yeltsin unexpectedly... announced that he had signed a decree on the implementation of the “Own Home” housing program, in which everyone is promised not only cheap housing, but also the possibility of purchasing it on credit. All that remains is to find out where and when you can queue for this loan.” “Money” did not find it: “There is a document, but there are no regulations on how to implement it.”

If such a situation existed, there would not be a queue: the program provided for loans for up to 25 years at 10-20% per annum in rubles. At that time, this was both unusual and unjustified: rates on ruble deposits were 50-70% per annum, and banks issued ruble loans at 110-130%. However, pretty soon the promise of inexplicably low mortgage rates became part of the political tradition.

In 1998, 39 certificates were issued in Moscow for ten-year loans at 10% per annum in foreign currency. But there was a problem with the loans: “Due to the financial crisis... American investors who promised to provide $500 million to $1 billion for mortgages in the capital refused to participate in the program.” The mayor's office also did not work out with authorized banks: only Investsberbank began working on the project. And Sberbank wisely wanted to “issue loans no cheaper than 14% per annum in foreign currency (11% is the cost of attracting resources plus a 3% margin),” while the authorities insisted on 10%.

The origin of this bet has become anecdote. As Vladimir Ponomarev (in 1996-1998, adviser to the mayor of Moscow on housing mortgage lending, and later deputy chairman of Gosstroy) told Denga years later, when in 1998 the Americans asked Yuri Luzhkov where the 10% came from, he replied: “I The mayor! I have the right to set any interest rate for banks operating in Moscow. I asked my wife Elena. She advised me to set 8%. I listened to her and... added another 2%. He laughed it off, “but every joke has some humor in it,” and the US delegation was not tempted by the partnership. There was enough city money for ten loans. In 1999, there were funds in the budget to resume the project, but not much.

"Loans are not only for those on the waiting list"

By the fall of 1999, a year after the adoption of the mortgage law and the official start of the capital’s mortgage program, 63 classic mortgage agreements were registered in Moscow, and the city purchased only 17 loans. Loans were not issued to non-residents. 85% of potential borrowers, having heard about the income certificate, never returned to the bank, and of those who remained, many “broke down” while collecting documents: “To bypass all the necessary authorities (from the health department to the dermatovenous dispensary), you need to spend a lot of nerves and time - no less two to three months,” said the bankers.

And yet, Dengi was able to call mortgages one of the most successful projects of 1999: through the efforts of Gosstroy, the 2000 budget for the first time provided guarantees for borrowings from the Housing Mortgage Lending Agency for 3 billion rubles. (then $100 million) - “enough to issue loans to 15 thousand families.” The USA-Russia Fund has undertaken to invest in mortgages. Since 2000, the loan count began to grow rapidly, along with the security of banks and their access to long-term money.

In 2002, a law was passed regulating the eviction of a defaulter from mortgaged housing, in 2003 - a law on mortgage-backed securities (however, the first issue was registered only in 2005), and in 2004, as part of the “housing package”, it was simplified the procedure for using mortgages and the law on credit histories was adopted. Rates fell, construction could not keep up with demand - the price of apartments went up. In 2006-2008, housing became so expensive that mortgages were taken out for investment purposes, and the increased price again made it an unattainable dream. “The current generation of Russian citizens will die before comfortable housing becomes available,” Dengi noted in 2012, when Vladimir Putin (then Prime Minister of the Russian Federation) again spoke about low loan rates - 6.5% or even up to 3-4%, “if we can push down inflation.”

“You won’t see either an apartment or money.”