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    Russia’s Central Bank to Gain Authority to Limit Mortgage Issuance from July 2024

    Russia's Central Bank to Restrict Mortgage Issuance from July 2024

    In a significant move that could reshape Russia’s mortgage landscape, a legislative proposal is set to empower the Central Bank of Russia with the authority to restrict banks from issuing mortgages, effective from July 1, 2024. This development, as reported by Reuters, comes from Anatoly Aksakov, the head of the State Duma Committee on the Financial Market and the architect of the bill. The proposal is expected to undergo its initial legislative hurdle, with the first reading slated for February or March.

    The Central Bank’s endorsement of this initiative marks a pivotal shift in the regulatory framework governing Russia’s mortgage industry. The rationale behind this move stems from the need to mitigate risks associated with the current mortgage lending boom. Aksakov highlighted that the existing preferential mortgage lending programs are due to expire by mid-2024. Coupled with the prevailing high key interest rate, currently at 16%, there is a looming possibility of a significant reduction in mortgage issuance.

    The Central Bank’s approach to implementing these restrictions will be contingent on various macroeconomic factors, including borrower debt loads and market dynamics. This cautious and situational strategy aims to balance the need for financial stability with the potential impact on the housing market.

    Experts and officials have weighed in on the potential implications of this legislative change. Oleg Savchenko, Deputy Chairman of the State Duma Committee on the Financial Market, supports the bill, citing its focus on addressing the overheating mortgage market and the growing proportion of loans to high-debt borrowers. The Central Bank’s press service has indicated that the regulator finds it pertinent to have the authority to set macroprudential limits on mortgage loans, expecting to utilize this tool within the year.

    Economic experts anticipate a contraction in mortgage issuance six months post-enactment of the law. The proposed law aims to reduce the proportion of ‘risky’ mortgage loans, aligning with pre-crisis levels. Banks are expected to be sensitive to the Central Bank’s recommendations, potentially leading to a decrease in loans to borrowers whose monthly mortgage payments exceed a significant portion of their income.

    The legislation has sparked debate within the banking community. Alexey Voylukov, Vice-President of the Association of Banks of Russia, has urged a measured approach, advocating for an assessment of the effectiveness of existing measures before granting additional powers to the Central Bank. He expressed hope that the Central Bank would engage in dialogue with the banking sector to understand the broader implications of these new powers.

    In summary, this legislative proposal, if passed, will mark a significant shift in Russia’s mortgage lending landscape. The Central Bank’s enhanced role in regulating mortgage issuance aims to ensure financial stability while addressing the challenges posed by the current lending environment. The impact of these changes will be closely watched by stakeholders across the financial sector.

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