But it can be worse
Pasions are running high around mortgages in Russia: the question is now being decided whether benefits on housing loans will be extended and for how long. Meanwhile, housing lending is a global phenomenon. To one degree or another, it is developed in almost all countries of the world and in each of them it causes its own problems. MK found out how the housing issue is resolved abroad.
When buying housing on credit in Russia, citizens often complain about high interest rates and a large down payment: even under preferential programs they are 8% and 20%, respectively. The average interest rate on mortgage loans is close to 10%. However, when compared with other countries, it becomes clear that our country has quite acceptable housing lending conditions that correspond to the world average. To begin with, it is worth recalling that in Russia the mortgage market is still very young. “Even the very first generation of mass mortgage holders, who borrowed apartments without any benefits or guarantees in the early 2010s, have not yet fully purchased their apartments,” says Valery Emelyanov, an expert on the stock market at BCS World of Investments. The most developed mortgage market is in the Anglo-Saxon countries, where it actually appeared.
Initially, back in the 18th century, these were construction funds or cooperatives. Today's Americans still have great-great-grandmothers who paid a mortgage: for them this is a really widespread and affordable option for buying a home. Although in the United States the first mortgage crisis broke out more than 90 years ago. Later, home equity loans migrated to continental Europe. True, there were many peculiarities in application in the Old World. Thus, in Sweden, until recently it was possible to take out a mortgage for 140 years, but later the authorities limited its terms to 105 years. But this, of course, is an exception to the rule.
Currently, the average mortgage term in all countries is from 20 to 30 years. This is due to the age limit of the borrower: you need to have time to repay the loan before retirement. If a person started servicing a housing loan at the age of 30, when they usually have children, then they will pay it off in full just in time for retirement. Interest rates in countries with a developed mortgage system can vary from 1% to 30%: this greatly depends on where and by whom the mortgage is taken, as well as on the amount of the down payment.
Europe has some of the lowest mortgage interest rates in the world, but conditions vary within and outside the EU. In particular, in the UK the housing loan rate ranges from 1.95% to 3.5% per annum. Moreover, such conditions also apply to non-residents of the kingdom. The minimum mortgage amount is 350 thousand pounds sterling, which is approximately equivalent to 41.9 million rubles at the current exchange rate. The loan term varies from 3 to 20 years.
The average mortgage rate in EU countries ranges from 1.5% to 5% per annum. The loan term in most countries in the region ranges from 5 to 30 years, and the minimum mortgage size is from 80 thousand to 150 thousand euros.
The lowest interest rate is in Iceland, it starts from 1.5%. There, the borrower can take up to 80% of the value of the property on credit, and he must make 20% as a mandatory down payment. The maximum loan term has been increased compared to the average requirements in the EU and reaches 40 years. Switzerland is next, where the interest rate starts from 1.8%, but there is another advantage: the borrower has the right to borrow from the bank up to 90% of the value of the property. The mortgage term is up to 50 years, and a lifetime mortgage is also possible.
In Germany, mortgages are available to both residents and non-citizens of the country. Its processing takes about a month, and the loan is issued for an average of 20 years. The interest rate depends on the loan amount and the term for which it is issued, on the credit rating (Schufa) of the borrower, his financial and marital status. The previous five years interest rates in Germany were 1.5%, but over the last year things have changed a lot and are now 4%. The down payment can be 10–20% of the cost of housing. It is also possible to get a mortgage in Germany without a down payment, but in this case the borrower will be set a higher interest rate. Plus, you can safely add from 7% to 16% above the purchase price of the property — this amount will go to taxes, a notary and a realtor.
The French mortgage market is considered one of the most secure in the EU and the world. According to the local statistical bulletin, in the summer of 2023 the annual mortgage rate there was 4.68% for loans with a fixed rate for a period of 20 years.
In Spain, citizens are given benefits in terms of interest rates and creditworthiness, they can borrow up to 80% of the value of the property. But for foreigners who purchase real estate in this state, the conditions are stricter: they can take out 50% to 70% of the total amount on credit. True, the housing market in Spain still remains extremely attractive for non-residents. By the way, most often the British, Germans and French buy real estate there. The fixed interest rate in Spain is from 3.45%, floating — from 5.03%. In addition to the down payment, other expenses will be required: payment for the appraisal of the property and a commission to the bank after the official closing of the transaction. All this will cost approximately 1,500 euros, that is, more than 150 thousand rubles at the current exchange rate.
In Poland, loans for the purchase of housing are most often issued in zlotys. Since 2017, Polish banks can cover from 80% to 90% of the full cost of housing, with the final loan amount remaining at the discretion of the banks themselves. In other words, the down payment, accordingly, will be from 10% to 20%. In the case of loans with a fixed interest rate, its value remains constant throughout the entire period specified in the agreement: now it is 6.75%. Borrowers should be prepared for additional costs such as bank commissions, bank real estate appraisal fees, additional borrower life insurance, and other fees and commissions (they may appear if the client wants to pay off the mortgage early or pays money late).
The highest interest rate in the EU is in Bosnia and Herzegovina, at 8%. However, overall the real estate market in this region is relatively stable. As Emelyanov notes, in Europe, according to various sources, now the share of overdue housing loans is only from 0.7% to 1.7%.
In the United Arab Emirates, the interest rate starts at 2.35%, but the loan size can vary greatly, ranging from 50% to 80% of the value of the property. In addition, getting a mortgage loan in the UAE is quite difficult: you need to collect an extended package of documents. The loan term cannot exceed 25 years. “The UAE has created very favorable conditions for the development of the construction industry, and investing in real estate is very profitable, since interest rates are quite low,” notes Associate Professor of the Russian Economic University. Plekhanova Yulia Kovalenko. — For the most part, citizens refuse to rent and take out loans to purchase their own real estate. In addition, with interest rates ranging from 1% to 8%, preferential programs in principle are not particularly interesting, unless the loan term or the size of the down payment depends on them.” Accordingly, to develop the real estate market in a country like the UAE, the state does not need to interfere in market processes: the industry is developing well even without support.
< p>In Canada, the rate on home loans can be floating or fixed, depending on the terms of the agreement with a particular bank. In the first half of 2023, its average mortgage size was 6.35%. The down payment in the Land of the Maple Leaf is most often 20%. Although there are banks that are ready to issue a housing loan with a down payment of 5% of the property value. All loans are issued in local currency — Canadian dollars — the exchange rate of which is undervalued in relation to the American dollar.
Mortgage rates in the US are 3-4%. A loan for the purchase of real estate can be taken out for a period from 1 year to 30 years. The minimum mortgage size starts from $100 thousand, which is equivalent to about 9.6 million rubles. The situation with delays is now acceptable. Regulators have drawn serious conclusions from the crisis fifteen years ago. According to Emelyanov, the delinquency rate in the United States is now approximately 3.5%. This is the share of a problem mortgage that is not repaid on time or not repaid at all. For comparison, during the mortgage crisis of 2007–2008 it reached 10%.
Latin American countries have completely different lending indicators. Thus, in Brazil the interest rate starts at 58.46%, and previously it was even higher. But it should be noted that the total volume of lending as of July 2023 is quite large and amounts to $155.268 billion, even despite such a high interest rate.
In Venezuela, interest rates start at 21%. Banks in Argentina provide an even higher interest rate on housing loans: there it is 28%. It should be noted here that this industry in the listed countries is not at all developed and is completely dependent on state subsidies. Well, as for such significant rates, they are explained by two reasons — high inflation, which in these countries either was observed quite recently or is still ongoing, as well as the high risks of non-repayment that banks include in their interest rates.
In China, mortgage interest is tied to the base rate LPR, which is regulated by the state represented by the People's Bank. The five-year LPR rate is 4.6%, the annual one is 3.7%. The minimum interest rate on a mortgage issued for a year will be 3.5%. “If you take out a mortgage for five years, the rate will rise to 4.4%,” explains Natalia Muradova, chief lending specialist at the Infull mortgage broker. “In the first quarter of 2023, the average mortgage interest rate in China was 5.5% per annum, which is comparable to Russian preferential programs.”
By 2023, the development of China's real estate market had slowed down, and housing loans had become widespread. Mortgages account for about 60% of all debts of the population to the state. This is all due to the coronavirus pandemic, during which mass construction was suspended, and citizens everywhere began to boycott mortgage payments for housing that they never received.
The average annual mortgage rate in South Korean banks greatly depends on the type of program and can vary even within the same credit institution. So, in Shinhan Bank it ranges from 3.14% to 4.45%, in the National Bank — from 3.28% to 4.48%, in Nonghyup Bank — from 3% to 4.59%. Is it easy to pay off such a mortgage? To understand this, you need to look at housing prices. The cost per square meter in the central parts of South Korean cities is $9 thousand. On the outskirts it is several times cheaper — about $3–4 thousand. Buying an apartment on average will cost a South Korean resident from $200 thousand to $700 thousand, which is equivalent to an amount of 19.2 million up to 67.3 million rubles. So, despite low loan rates, buying a home in the Land of Morning Freshness is a very expensive pleasure.
Japan is the leader in low mortgage rates in the region. Mortgages in the Land of the Rising Sun are issued at 1.2% per annum, which is explained by high real estate prices and low inflation. According to Muradova, the average cost of 1 square meter of housing in Japan is $5 thousand, or 481 thousand rubles.
In India, the figures are close to those in Russia: there the mortgage rate is on average 10.1%, with a minimum of 8% and a maximum of 20%. “It is in such a situation, when interest rates vary in the range from 10% to 15%, that various preferential programs, such as those available in Russia, are needed,” Kovalenko emphasized. “They are also used in India, since the minimum value there has been increased to 8% due to government benefits.”
Is it possible to draw a conclusion from these statistics about in which country the real estate market is overheated and could eventually lead to a “bubble” and a new mortgage crisis? Expert opinions differ here. According to Alexander Arsky, associate professor of the Department of National Economics at RUDN, anti-Russian sanctions spurred inflation in the EU and the USA, rates there increased by 2-3%, which is noticeable on long mortgage terms. At the same time, China is overcoming the mortgage crisis of 2020, when demand fell due to the pandemic and construction companies were highly indebted. And yet, a new mortgage crisis can be realized in the United States with increasing internal political contradictions and a decrease in dollarization of the world economy, which will lead to an acceleration of inflation and a doubling of mortgage rates, the scientist believes.
One indicator of the unhealthy state of the real estate market in the country is the level of overdue debt on mortgage loans. Usually for analysis it is compared with the state’s GDP. For example, in 2022 in Russia the ratio of the mortgage portfolio to GDP was about 10%, in EU countries — more than 40%, in Australia — almost 90%. As Natalya Vashchelyuk, chief analyst of Sovcombank, notes, the indicator in Russia is relatively low, since the share of housing owned by citizens is higher. The situation is similar in Eastern European countries. Thus, in Romania and Hungary the share of mortgages in GDP is about 8%, in Bulgaria — 11%.
Another sign that a crisis may be emerging in the mortgage market of a particular country is the ratio of household income to their expenses for repaying a home loan. According to Emelyanov, of the large countries where there is a more or less mass mortgage market, the worst, that is, high, coefficients are in China and Turkey: there the average standard payment is equal to 3 average salaries. For comparison, in Russia this is a little more than 2 average salaries, in India — about one salary, in Europe about 60%, in the USA less than 40% of one salary. It turns out that according to this criterion, in developed countries the probability of a “bubble” occurring is several times lower than in Asia or Latin America.
In any case, the most debt-ridden countries are those with highly developed economies, where housing loans are most accessible citizens. As Kovalenko reminds, the mortgage crisis of 2008 began in the United States and it is not at all excluded that new global problems will come from there. After all, if a mortgage “bubble” explodes in one of the developed countries in the world, then, like a domino effect, other countries will follow, because the total overdue amount for all types of loans is growing every month, the expert noted.