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Mortgages for the masses

For Russia's growing middle classes, buying a home has not always been easy. High interest rates and vast documentation requirements have made mortgages accessible to only a very small section of the economy.

But a range of government initiatives implemented during and after the crisis to kick start Russia's ailing housing market are changing the dynamics of buying a property, and the mortgage market has experienced a boom as a result.

The market grew by almost 21 percent in 2010, double its growth rate from the year before. According to Central Bank statistics, Russian Banks gave out mortgage loans totaling 268.6 billion rubles ($9,265 billion) in the first half of 2011, compared to 133.4 billion rubles ($4.600 billion) in the same period last year.

"The market has grown, mainly in the low-cost property sector, after being boosted by governmental mortgage programs," said Anna Levitova, managing partner at Evans. "Banks have lowered interest rates and down payment sums and introduced laxer requirements for borrowers."

Experts say the government initiatives are having a significant effect on mentality and the word mortgage is beginning to lose the negative connotations it held before the crisis.

Bogged down

Russia's mortgage market is extremely young, having emerged only in 2003. Although it has grown rapidly since then, high levels of bureaucracy are still excluding many home buyers from taking out mortgages.

But the system is now slowly beginning to change. Although a vast array of documentation is still required to secure a mortgage, the application process, which previously took over two weeks, has been speeded up.

Sberbank now takes seven working days to process a mortgage application, while Vozrozhdenie and VTB24 have reduced their application process to three days. Baltika bank has gone even further and offers a one-day online application process.

In an attempt to change the bureaucratic reputation of mortgages, VTB24 launched a Victory Over Formality program in May, which gives mortgages without proof of income to customers who can provide a 50 percent down payment. Such clients are required to produce only a passport copy and driver's license.

Interest rates remain high

Although they have dropped significantly in the past few years, interest rates on Russian mortgages remain almost twice as high as those in Europe.

"Average interest rates on mortgages plummeted from 16.6 percent in 2009 to 11.28 percent in 2011, and the lowest interest rate is now 8,5 percent for mortgages taken in rubles," said Alexander Ziminskiy, director of the elite real estate department at Penny Lane Realty.

But Anatoly Pechatnikov, chairman of the board at VTB24 said at a news conference on mortgages in Moscow on Tuesday that interest rates cannot be lowered further without further government stimulus programs.

"Generally it's impossible for banks to give mortgages with interest rates below 11.5 percent due to high competition and relatively low demand," said Pechatnikov.

VTB24's lowest interest rate is 7.5 percent, a rate only granted over short time periods and on very secure loans.

Special offers for customers with a good credit history have increased accessibility for lower earners. A successful example is Sberbank's 888 program, which offers a mortgage at 8 percent interest over an eight year period.

More accessible

Securing a mortgage in Russia has traditionally been very difficult for low earners, with banks generally giving preference to customers aged between 27 and 45, with a higher education and salary above 100,000 rubles.

Those working in the financial and IT sectors are best placed to receive a mortgage and some banks have even lowered the minimum wage for such borrowers to 21, and in some cases even 18.

The government initiatives to encourage banks to make their services more accessible to the general public are changing this trend.

Furthermore, as the economy picks up, the amount of money the average Russian is able to pull together for a down payment is increasing.

"The mortgage market is reviving - now clients are able to pay 30 percent down payments, while before the crisis very few could pay more than 15 percent," Raiffaisen bank board member Andrey Stepanenko said at Wednesday's news conference.

Mortgages are usually taken out for 25 years, but borrowers on average pay off the loan within seven-eight years.

Up to 27 percent of properties are now purchased using mortgages, real estate agencies say, and the average sum taken out to buy a flat is $100,000-$120,000 in Moscow and about $45,000-55,000 in the regions.

The state-owned Agency for Housing Mortgage Lending, which was set up to facilitate mortgages in Russia, forecasts that by 2015, every third family will be able to take out a mortgage to buy a property and by 2020 half of Russians will have mortgages.

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