Mortgage loan: getting it now or wait?

Mortgage loan: getting it now or wait?

Russia's government has a specific task: mortgage rate should drop to 7%. The path towards this goal won't be easy. Rates of any loans, including mortgage loans, depend on refinancing rate of the Central Bank. Refinancing rate is the annual amount of loan, which the Central Bank lends to commercial credit institutions. Over the past few years, the Central Bank has reduced refinancing rate, and now it reached 7.5% per annum, but it's not enough to lend mortgage loans at 7% rate, so it should be lowered even more.

Is it real and feasible?

During devaluation and unprecedented demand for dollars, as well as in order to stop attempts of dollar speculations, Russia raised rate to 17%. It happened in December of 2014, after a meeting of the Central Bank. Such high rate slowed down the development of economy, so it could only be a temporary instrument. After stabilizing economy, the Central Bank began to gradually lower it.

At the same time, the US Federal Reserve System began the process of raising refinancing rates in dollars. During the 2008 crisis, in order to overcome its consequences as soon as possible, this rate was lowered to zero and remained at such low levels for a long period of time. Now this rate is 1.5% and, according to forecasts, in the near future it can grow up to 4%.

Where will this situation lead to? What does growth of rates even mean? It means increase in value of money. US dollars will become more expensive. With the growth of refinancing rates, there is also an increase in bank deposits rates. Inevitably, over time, dollar deposits will grow in value, and loans in dollars will become more expensive.

In other words, changes in interest rates in the Russian Federation and the United States occurs in opposite directions. Will they will be the same at one point, which seems pretty logical? Most likely they won't. Russian ruble is currently attracting world investors with its relative stability and increased (in comparison to dollar) profitability. But if dollar and ruble have the same profitability, dollar will gain an undeniable advantage thanks to its greater reliability, stability and predictability. Russia will loose investors. And this will lead to another large-scale devaluation of Russian currency. Russian authorities don't need it with such difficult international situation.

People who make decisions in the Central Bank are considering these scenarios, and they are unlikely to allow such development of the situation. After sudden of volatility on April 9, the Central Bank recalled that the rate can't just decrease, but also increase. So it's possible that with if anything unexpected happens again to Russian currency, regulator will once again take strickt measures.

So we shouldn't expect rapid rate drop in Russia. Mortgage rates will also drop down extremely slowly.


Vestnik Kavkaza

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