What is more profitable: a new building or a secondary mortgage?

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Today, the housing issue is the most pressing issue in Russian society. This affects many areas of citizens’ lives – social, professional, personal, family. Almost the only solution to the problem at the moment is to take out a mortgage. For most families, a mortgage has become a real salvation, since housing prices are not entirely affordable and the economic crisis in the country does not allow them to save the necessary amount to purchase real estate.

Signs of qualifying a mortgage in Russia

A mortgage is a long-term loan (up to 30 years), secured by any valuable real estate owned by the borrower (Article 334 of the Civil Code of the Russian Federation). The essence of this action is that in the event of failure to fulfill debt obligations by the mortgagor, the creditor has the right to sell the collateral and cover the debt or register it as his own property (Article 1 of the Federal Law “On Mortgage”). As a result, the citizen gets the opportunity to purchase housing, and pays for it gradually.

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Schematically, this procedure looks like this: the client enters into 2 agreements with the bank - the main and the mortgage. According to the first, the bank issues money, according to the second, it takes real estate as collateral (usually its value exceeds the loan amount).

For your information

The system of relations based on the mortgage of real estate is regulated by the Law “On Mortgage” 102-FZ dated July 16, 1998. Mortgages in Russia are also regulated by the Housing Code of the Russian Federation, Federal Law dated July 21, 1997 “On State Registration of Rights to Real Estate and Transactions with him" FZ-122, FZ-218 dated December 30, 2004 "On credit histories".

Mortgages are classified according to the following criteria:

• Bail . It serves as collateral for the mortgage loan. The collateral can be the borrower's property or the property being purchased.
• The object on which the borrowed funds will be spent . This could be an apartment in a new building or on the secondary market, or a share in a residential building. Or the funds will be invested in the construction of a private house. Depending on the type of object, the bank forms the conditions for issuing a mortgage.
• Direction . The type of mortgage can be social or commercial. In the first case, the state takes part in financing (directly or indirectly), providing preferential conditions to applicants. The second option remains for those citizens and legal entities who do not have access to any benefits.
• Type of mortgage payments . There are 2 systems: annuity (the mortgage is divided into principal and interest) - payments are the same throughout the entire loan term; differentiated - payments decrease over time.
• Purpose . Targeted mortgage - when it is planned to purchase a specific property and non-targeted - it is permissible to spend mortgage funds at the discretion of the borrower.

Financial institutions are working tirelessly on new mortgage lending programs to meet the needs of various categories of citizens. So there are more and more types of mortgages. They differ in name, conditions for registration and requirements for borrowers.

Structure of issued loans

In 2021, the share of mortgages issued for new buildings was 34%, in the secondary market - 49%, loans for refinancing - 14%, for land plots and houses - 2%. In May, there was a sharp increase in the share of mortgages in the primary market, which was caused by the launch of a preferential mortgage “6.5%” at the end of April 2021. The maximum share of mortgages for new buildings in 2021 was recorded in June-August (37-40%). The share of mortgages in the secondary market during the year remained at the level of 48-53%. The share of loans for refinancing resumed growth in the second half of the year against the backdrop of a gradual decline in rates to a historical minimum under the program to 7.94 percentage points. in December 2021, which is by 1.2 percentage points. below December 2021 values. Also in November, refinancing of mortgage loans for new buildings was launched by Sberbank, the market leader, which took 4th place in terms of the volume of loans issued for refinancing in 2021. The share of loans for finished residential buildings consistently did not exceed 4% of all issuances; the maximum share of loans fell in April-July, which is due to the seasonality of the product.

In December, the share of mortgages for new buildings was 31%, in the secondary market 52%, loans for refinancing 14%, for land plots and houses remained at a minimum level of 2% of the total volume of loans issued.

— Among the top 20 banks, the largest share of loans in December for new buildings belonged to Bank St. Petersburg (61% of the bank’s total loans in December), Promsvyazbank (60%), and Gazprombank (49%);

— The leaders in terms of the share of issues in the secondary market remain Sberbank (71% of all issues), Absolut Bank (68%) and Asia-Pacific Bank (66%);

— More than half of UniCredit Bank’s issues are for mortgage refinancing (64% of all bank issues). The segment also predominates in Raiffeisenbank (47%) and Bank DOM.RF (49%);

— Rosselkhozbank is still the first on the market in terms of the volume of loans issued for land plots and residential buildings (27% of all issues). The bank continues to actively participate in the Rural Mortgage program, which allows it to remain a leader in the segment of loans for residential buildings.

How do the requirements for a borrower differ depending on the type of mortgage?

Almost all banks have the same requirements for borrowers applying for a standard mortgage loan:

• age limit – from 21 to 75 years;
• continuous work experience at the current place - at least 6 months and total - 1 year or more;
• availability of permanent or temporary registration;
• income that allows you to make monthly mortgage payments;
• unblemished credit history.

A number of preferences are provided to clients whose salary or pension is transferred to a card of the same bank. The requirements for borrowers applying for a mortgage under a certain preferential program are slightly different.

Social mortgage programs.

Socially needy segments of the population who need improved housing conditions can count on them. These include:

• young families (the age of each spouse should not exceed 35 years) with or without children;
• families with a disabled person registered no later than January 2015;
• social security workers, as well as cultural and sports workers;
• veterans;
• employees of government agencies.

If you take out a mortgage loan under the “Young Family” program, the conditions will not change, but a subsidy from the state (in the amount of 30-35%) will help you save some of your own funds. Families with two or more children can use maternity capital.

Military type of mortgage.

In this case, the applicant must be a participant in the NIS savings and mortgage system. And this opportunity is provided only to military personnel. The mortgage will be repaid by the state, and the borrower, in return, will have to perform military service for the period specified in the contract.

Requirements for a foreign borrower

Requirements for the borrower may vary depending on the chosen bank and mortgage program.

As we have already noted, it is easier for foreigners from the CIS countries to get a loan than for foreigners from non-CIS countries. However, a number of Russian banks have developed mortgage lending programs for such foreigners.

For example, residents of non-CIS countries can apply for a mortgage at VTB Bank; just go to the bank’s official website and select the mortgage lending program that interests the borrower. A mortgage calculator will help you calculate your monthly payments.

What documents must foreigners collect to obtain a mortgage?

The main package of documents is as follows:

• photocopy of passport;
• residence permit (not all banks require it, but having one increases the chance of getting a mortgage loan);
• temporary residence permit (if the foreigner does not have a residence permit);
• visa (if required by law). For example, for citizens from Turkey and other foreigners who wish to work in Russia, it is necessary to obtain a visa. For citizens from Armenia, Kazakhstan, Azerbaijan, etc. no visa required;
• certificate of income (in form 2-NDFL or in bank form);
• permission to work in Russia (patent);
• application form (filled out at the bank).

In addition, banks may require additional documents in each specific case. Such as the presence of real estate in Russia, a spouse who has Russian citizenship (the opportunity to become a co-borrower of the loan).

Standard mortgage programs for finished housing

The type of mortgage loan for finished housing (purchased on the secondary market) is based on the following indicators:

• optimal interest rate per annum;
• minimum down payment;
• loyal attitude towards borrowers;
• fast processing;
• compulsory life and real estate insurance.

The conditions for providing a mortgage type of loan in various banks are summarized in the table:

IMPORTANT
A feature of this type of mortgage is the need to obtain insurance in case of loss of title or ownership of the home. Thus, there are often cases when, after some time, suddenly appearing heirs begin to lay claim to the acquired property. As a result, you can lose your apartment and be left with a large debt. To prevent such an outcome, property title insurance is needed.

Cost of future investments

There is a common misconception that a new building always requires more investment than housing on the secondary market. This illusion arises due to the fact that new housing requires immediate investment, while real estate on the secondary market allows you to carry out renovations gradually, after moving.

To objectively assess future expenses, it is necessary to draw up an estimate for a specific apartment. Moreover, it needs to include not only urgent work (installation of plumbing or purchase of a kitchen unit), but also those planned for the future (replacement of old pipes, cheap window profiles, low-quality laminate, etc.).

Standard types of mortgage lending for housing under construction

It is financially more profitable for borrowers to take out a mortgage loan for housing in buildings under construction. This is due to the fact that such objects become more expensive only after the apartment building is commissioned, and at the construction stage the cost is more than affordable.

Attention

For credit institutions, new buildings are considered a risky investment. Because of this, they are tightening the conditions for providing mortgages. Thus, every developer must be accredited with a bank.

Approximate mortgage conditions for new buildings are presented in the table:

Please note:
There are types of mortgage offers where it is possible to provide existing housing as collateral. Such a mortgage program is a rare occurrence, since mortgages are taken out mainly by people who do not have personal living space.

The conditions for the type of mortgage secured by real estate will be as follows:

• no need to make a down payment;
• the credit limit does not exceed 80% of the value of the collateral.

Interest rate on mortgage loan

For secondary housing, the annual interest rate is always higher. At first glance, it may seem that the difference is small (2-3 percentage points), but given that the mortgage agreement is concluded for many years, these few percentage points can reach several hundred thousand or a couple of million rubles over the entire loan term .

The best mortgages for new buildings are traditionally from the most famous giants: Sberbank (from 9.6%), VTB (from 9.7%) and Rosselkhozbank (from 9.45%), however, favorable offers are also found from smaller commercial banks.

To get the best mortgage from banks for new buildings, it is recommended to pay attention to the organization whose card the borrower uses to receive a salary. Most often, the bank provides salary clients with a small discount of 0.2-0.5% per annum.

Standard mortgage programs for house and land

Basically, mortgages are issued for the purchase of apartments, but alternative options are possible when funds are provided for house construction. Then the collateral will be a land plot or a residential building being built and other outbuildings on the site.

The conditions of the construction mortgage program are standard, but special requirements are imposed on the land plot:

• must be located near a populated area;
• availability of a building permit;
• the size of the site must comply with SNiP standards regarding urban development.

Social programs for obtaining a mortgage

In addition to standard targeted mortgage offers, there are social ones. This type of mortgage means government support - partial financing comes from the budget for citizens belonging to the preferential category.

Social mortgage in the regions.

In a number of regions, local governments are introducing additional social mortgage programs, thanks to which certain segments of the population are able to improve their living conditions.

Basic requirements for applicants:

• permanent residence in a specific region for at least 5 years;
• registration as low-income citizens in need of housing or expansion of existing ones;
• employment in the public sector or belonging to a preferential category;
• stable income.

To become a participant in the targeted federal program for obtaining a mortgage, you must collect the required package of documents and submit it to the Department of Housing Policy.

With maternal capital.

Families who received a maternity certificate after the birth of their second child can count on it when applying for a mortgage loan. Today, the amount of this capital is 453,026 rubles (Federal Law of December 29, 2006 N 256-FZ). It can be used as a down payment or for partial repayment of the loan body.

IMPORTANT

The important thing is that it is permissible to use maternity capital funds immediately if you plan to apply for a mortgage. While in other cases you need to wait 3 years.

Real estate purchased using children's capital must be distributed in equal shares among all family members (including minors) after the loan is fully repaid.

Mortgage programs "Young Family" in banks.

Banks participating in mortgages under the Young Family program do not limit borrowers in their choice of real estate. Specific mortgage requirements are put forward only for applicants:

• the age of young spouses should not be older than 35 years;
• official registration of marriage is required;
• sufficient monthly income to pay off the mortgage (you can attract co-borrowers).

Participants in this program receive a housing certificate in a certain monetary equivalent: for childless families - 30% of the cost of the purchased property, for families with children - 35%. It is used when taking out a mortgage loan as a down payment or to pay off interest. The rules for participation in this project are outlined in Decree of the Government of the Russian Federation dated December 17, 2010 No. 1050.

For your information

It should be noted that the type of mortgage for newlyweds in Sberbank and Rosselkhozbank has more favorable conditions than with standard options.

Children's (family) mortgage at 6% with state support for a new building.

In order to improve the country's demographics, the so-called children's mortgage was introduced at a reduced rate of 6%. Families who will have a second child born or adopted between January 1, 2018 and December 31, 2022 can count on it (in accordance with Federal Law No. 157-FZ of July 3, 2021 “On state support for large families”).

Conditions in this case:

• funds are issued in cash or by transfer to an account;
• it is possible to buy housing only in a new building;
• presence of Russian citizenship.

For your information,
the low annual rate for children's mortgages is provided for a period of 3 years upon the birth of a second child, and 5 years upon the birth of a third. If two were born during this time, then the indicators are summed up - the result is 8 years.

Wooden type of mortgage.

This is a special mortgage program that allows you to purchase environmentally friendly housing in wooden houses (in accordance with Government Decree No. 259 of March 15, 2018).

Basic conditions of this type of mortgage:

• reduction in annual interest by 5%;
• ownership of land;
• the loan amount does not exceed 3.5 million rubles;
• advance payment in the amount of 10% of the amount issued;
• collateral in the form of real estate is not implied.

Another important condition is that the finished object must be transferred from the developer to the customer within 4 months.

Military type of mortgage.

Another way to solve the housing problem is provided to military personnel. To take out a preferential type of mortgage, they need to become participants in the NIS savings system (Federal Law: dated 08/20/2004 No. 117-FZ and dated 05/27/1998 No. 76-FZ). Within 3 years after joining the program, you will be able to buy your own home with a mortgage.

The essence of this mortgage program is as follows:

• funds are transferred annually from the state to the serviceman’s personal bank account;
• the accumulated funds can be used to pay off the down payment on the mortgage (in most banks it is 20%);
• subsequent payments are made by the state, and the citizen, in return, regularly performs military service for the entire time that is discussed in the contract.

The maximum possible installment period is 25 years. It is permissible to use a mother's certificate.

Various types of non-standard mortgage lending programs

In addition to the usual long-term bank programs for purchasing housing with a mortgage, there are also non-standard ones. For example, a non-targeted loan, which allows the borrower to determine the object to be purchased. What other non-standard programs exist will be discussed further.

A type of mortgage with no down payment.

A mortgage without financial investments is available at the initial stage if the bank pledges existing real estate as collateral. When there is no money to make a down payment, you can take out a consumer loan.

However, in the absence of a down payment, subsequent terms of the mortgage loan will be less favorable. Thus, the bank tries to protect itself from possible risks.

A type of mortgage for a borrower with a bad credit history.

If the borrower has managed to damage his credit history, this does not prohibit him from obtaining a mortgage. True, the conditions will be stricter:

• making a down payment of 30%;
• higher annual rate;
• attracting a reliable guarantor;
• provision of liquid collateral for purchased housing.

Mortgage programs for foreigners.

Foreigners have access to a mortgage in our country (not prohibited by Federal Law No. 102 “On Mortgage (Pledge of Real Estate)” dated July 16, 1998) if they have been employed in the Russian Federation for at least a year. A number of other factors may influence the bank’s positive decision:

• availability of a residence permit;
• being legally married to a Russian citizen;
• ownership of property on the territory of the Russian Federation.

For your information,
the conditions for providing a housing loan to foreigners are the same as for Russian citizens. True, some banks inflate the interest rate.

Type of mortgage without proof of income and official employment based on two documents.

Officially unemployed Russians also have the opportunity to get a mortgage loan. To do this, you need to present your passport and one additional document (SNILS, Taxpayer Identification Number, foreign passport, driver's license or military record).

Since this transaction is quite risky for the lender, the conditions of the mortgage program should be tightened on its part:

• large down payment;
• involvement of a guarantor or co-borrowers;
• transfer of real estate as collateral;
• compulsory life and health insurance of the borrower.

Mortgage program for garage and parking space.

Such offers are rare, which is associated with the difficulty of determining the liquidity of the acquired object.

If the bank is ready to issue a mortgage loan for the purchase of a garage or parking space, then the following conditions must be met:

• the parking lot must belong to the building in which the borrower owns an apartment;
• down payment from 30%;
• documentary evidence that the garage or parking space is considered an independent property that is not subject to demolition and does not require major repairs.

If the car owner has not acquired his own apartment in a new building, then to obtain such a mortgage he should choose an object in any already built garage cooperative.

Mortgage for renovation.

Attention

Since major renovations are fraught with large financial investments, for many citizens the only option is to take out a mortgage. This is true for those who have purchased an apartment in a new building. In essence, this is a consumer loan, but with the need to pledge real estate as collateral. It is the object being repaired.

Conditions for the type of mortgage for renovation:

• credit limit – up to 70% of the estimated value of the living space;
• installment period – no more than 25 years;
• annual rate – from 12%.

You must then confirm that the funds received were spent for their intended purpose.

Mortgage programs for individual entrepreneurs, business owners and commercial real estate.

If there is a need to improve or expand their business by purchasing commercial real estate, individual entrepreneurs and legal entities have the opportunity to take out a mortgage loan.

The conditions will be as follows:

• down payment – ​​15-40%;
• limit – 100 thousand rubles. and more (depending on the borrower’s solvency);
• interest rate – from 9.5%;
• term – up to 10 years;
• the opportunity to buy real estate on both the primary and secondary markets;
• time of entrepreneurial activity – at least six months.

Applicants will have to collect a lot of documents. But in this sense, in Sberbank it is more convenient to take out a mortgage - it is enough to provide a passport, tax return, INN and individual entrepreneur certificate.

For your information

The type of mortgage for entrepreneurs who want to use maternal capital is available in Sberbank, Akbars and Rosselkhozbank.

Mortgage for pensioners.

A mortgage loan for retired citizens has a limit on the age of the borrower - at the time of payment of the last payment he should not be more than 75 years old. Since the lender risks that the borrower will not live to see the end of the loan repayment period, such offers are found in a limited number of banks:

• Sberbank;
• Transcapitalbank;
• Sovcombank;
• Akbars Bank.

Key Findings

1. In 2021, the 20 largest banks in terms of the volume of mortgage loans issued provided 1.7 million mortgage loans worth RUB 4.3 trillion. Despite the difficulties at the beginning of the year associated with the pandemic, 2020 became the most successful year in the history of mortgage lending in Russia: the volume of loans issued was 51% higher than last year. The key factors for market growth were:

— the soft monetary policy of the Bank of Russia allowed banks to significantly reduce interest rates on loans;

— realization of pent-up demand against the backdrop of the lowest interest rates in the entire history of mortgages in Russia;

— low interest rates on deposits (3.5-4%), which caused increased customer interest in purchasing housing;

— transition to escrow accounts in housing construction, which increased citizens’ confidence in the reliability of purchasing housing in new buildings.

Leading positions in the market in 2021 were taken by the largest banks: Sberbank (RUB 2.1 trillion in loans issued per year), VTB (RUB 935 billion), Rosselkhozbank (RUB 175 billion), Alfa-Bank (RUB 166 billion) , FC Otkritie (144 billion rubles), Bank DOM.RF (122 billion rubles).

In the structure of issued mortgage loans at the end of 2021, the largest share belongs to new loans for secondary housing (49%), new buildings account for 34%, refinancing 14%, land plots and houses 2%.

December turned out to be the most successful month of the year and the most productive month in the entire history of mortgage lending: the volume of loans issued amounted to 203 thousand for 542 billion rubles, which exceeds the figure for last December by 48% and is 14% higher than the results of the previous month. An increase in issuances was observed both for market programs (+17%) and preferential ones (+5%). The sharp increase in the volume of loans issued in December is explained by the influence of seasonal factors - traditionally, the main volume of lending occurs in the last quarter of the year, with the largest number of loans issued in December.

2. In 2021, mortgage interest rates decreased by 0.9-1.2 percentage points. Banks cut rates following the key rate of the Bank of Russia:

— new buildings: 7.93% (−0.98 percentage points by December 2021);

— secondary market: 8.15% (−0.9 p.p.);

— refinancing: 7.94% (−1.19 p.p.).

In December, there was another rate reduction in all segments:

— new buildings: 7.93% (-0.11 percentage points by November 2021)

— secondary market: 8.14% (-0.12 p.p.)

— refinancing: 7.93% (−0.11 p.p.)

3. In 2021, the 20 largest mortgage banks accepted 6 million applications for mortgage loans: 1 million applications for preferential programs and 5 million applications for market programs. The approval rate during the year was consistently high and amounted to 68% for the preferential program and 58% for market programs.

In December, the level of accepted applications decreased slightly and amounted to 562 thousand applications - 11 thousand applications less than in November: under the preferential mortgage program 114 thousand applications or 20% of all applications, under market programs 448 thousand applications. Their approval rate for the preferential program was 65%, for market programs 61%.

The legislative framework

All manipulations related to the execution of mortgage programs are regulated by laws and regulations. Among the many laws, the main ones that are recommended to be followed are:

• Constitution of the Russian Federation of December 12, 1993;
• Federal Law No. 102 “On Mortgages” (regarding the mortgaged property);
• Federal Law No. 122 “On state registration of rights to real estate and transactions with it”;
• Articles of the Civil Code of the Russian Federation No. 37, 131, 209, 246, 260, 329, 387, 488, 855, 935 (denoting the key rules for securing types of mortgage loans and other rights to the purchased premises, as well as the grounds for foreclosure of the mortgaged property);
• Letter of the Federal Tax Service of the Russian Federation dated 06/09/2005 No. 14-1-05/1884 “On property tax deduction”.

IMPORTANT
When taking out a mortgage, you should remember that the borrower gives his consent to the disposal of the mortgaged property in the event of his failure to fulfill his debt obligations. So you should first analyze your financial capabilities.