Should I take out a mortgage now? Is it worth taking out a mortgage now?

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The economic situation in Russia is now quite difficult, and many citizens are thinking about how to ensure the safety of savings by investing them in buying an apartment. Some intend to invest in real estate at the expense of personal funds, others rely on a bank loan. But is it worth taking a mortgage now? Perhaps there are better ways to invest?

Mortgage in crisis: two groups of indicators

To answer the question of whether to take out a mortgage now, when the difficult economic situation in Russia has developed, it will be useful to start by analyzing what are the key components of the banking crisis that analysts talk about so much. Then we will try to determine how much the EU and US sanctions against Russia are to blame for the current situation - they are assigned a key role in the fact that crisis tendencies have arisen in the Russian economy.

So, what are the problems in the national banking system of Russia? Experts identify two main groups of crisis indicators, which, in turn, are formed under the influence of a large number of variousfactors.

Solvency crisis

The first crisis indicator: the solvency of the population is declining. People simply cannot afford to take out new loans. This, in turn, is due to the following main factors.

First, with rising inflation, rising prices for most consumer goods, especially imported ones. The most noticeable increase in the cost of household appliances. And this despite the fact that real wages, if growing, are not in commensurate proportions. Also steadily rising prices for housing and communal services, transport. Result: citizens do not have free funds to service loans.

Secondly, this is the debt load of a significant part of citizens. Many people do not think so much about whether to take a mortgage now, but about how to pay off previous loans. Many Russians have difficulty paying off current debt.

Now let's try to determine how the economic sanctions against Russia influenced the emergence of the first crisis indicator. Regarding the first factor, there is probably an influence. Experts attribute the increase in the cost of products to the food embargo of the Russian Federation against European suppliers - and this is somehow connected with sanctions. This is the Russian answer to them. Regarding the second factor, most likely, the fault of the sanctions is relative here. The fact is that the bulk of loans were issued by Russians long before the political situation worsened.

Perhaps, we will also be en titled to note that both factors that formcorresponding indicator are linked. The increase in the cost of products and services, obviously, further limits the solvency of a potential borrower, provided that he has loans.

Crisis in banks

Second crisis indicator: the deterioration of the situation in banks, as a result - the inability of financial institutions to issue loans, including mortgages, and also offer them on terms that are comfortable for the consumer. The factors of the current situation, in turn, are as follows.

Firstly, banks have extremely limited free capital. In order to give something to borrowers, banks must have something. The liquidity of Russian credit institutions is assessed by many experts as low.

Secondly, banks, oddly enough, are in a similar situation with borrowers - in terms of debt load. The fact is that they themselves owe a lot to whom - foreign creditors, the Russian Central Bank.

In turn, let's try to determine whether the sanctions are to blame for the current situation? Many experts believe that this is so. Why? Supporters of this point of view focus on the fact that a significant part of Russian financial institutions are debtors of foreign creditors. In the years before the sanctions, they actively carried out external loans, taking advantage of the attractiveness of interest conditions. The repayment of debts was largely expected through refinancing mechanisms - through new foreign loans. Now, when, under the conditions of sanctions, Russian banks have practically lostthe opportunity to borrow money abroad, financiers need to look for new sources for payments. Many credit institutions, analysts believe, do not have their own reserves for this. And even more so, they do not have the capital to issue it as loans.

Is the situation in banks a priority?

Forecasts about how mortgages will develop, what to expect from the market, to a large extent, analysts believe, still depend on the real state of affairs in banks. The aspect reflecting the activity of potential borrowers is secondary at this stage. Even if the Russians did not have problems with solvency, dictated by the increase in prices (especially for electronics and other imported goods) and the absence of real growth in wages, the state of affairs in the banking industry itself is too far from optimal for the mortgage market to develop as actively as in over the past few years, economists believe.

Recoil with interest

Most likely, analysts believe that banks, if they wish to actively lend to citizens in a crisis, will do so by significantly raising interest rates. Or by tightening the credit approval criteria as much as possible. Thus, a scenario is quite possible in which a person does not even have to think about whether it is worth taking a mortgage now. Most likely, the bank simply will not be able to provide a loan on comfortable terms. Or even refuse the application due to internal crisis reasons. Does it make sense now to take out a mortgage when the situation in banks is far from optimal? Many experts believe that this kind ofdecisions are not yet very justified.

If the application is approved

Let's consider a successful scenario - let's say a Russian person has no problems with existing loans, he has a high salary, and the bank, in principle, is ready to provide him with a loan to buy a home. Is it worth taking a mortgage now for this citizen? The answer to this question can be given based on the study of the key aspect of the upcoming transaction: will it not turn out that after buying an apartment, after some time it will become cheaper so that the mortgage will be unprofitable for a person?

In this aspect, when deciding whether to take a mortgage now, it is best to study the market not so much in terms of the crisis situation in banks and sanctions, but in terms of analyzing trends that reflect the dynamics of buying and selling real estate. Of course, the political situation plays a role here. But the key factor in the prospects of investing in housing, experts say, is the state of affairs in the relevant market.

Real estate situation

How are things in the real estate segment? Is it profitable now to take out a mortgage in terms of the expected movement in housing prices? Experts identify three likely scenarios regarding the prospects for market development.

According to the first, real estate prices in the coming years will remain at a level more or less corresponding to the current one. Proponents of this point of view believe that today's real estate market in terms of pricing, supply and demand ratio is sufficiently balanced. Potential decrease in buying activity indue to the restriction of lending by banks and the low solvency of borrowers, economists believe, will be accompanied by a corresponding reduction in supply - largely due to the fact that homeowners prefer to wait out the crisis and not sell housing too cheaply. Is it profitable now to take a mortgage in relation to this scenario? Probably not much. Prices will remain the same, and bank interest, which, moreover, is likely to be large due to the crisis, will have to be paid.

However, it makes sense to take out an apartment on credit if a person is currently renting a house, and the estimated amount of payments will be commensurate with rental rates. However, this option assumes that a citizen has a significant amount for a down payment on a mortgage. And in this case, it would probably be more profitable to issue it as a deposit, to receive interest, through which, in turn, pay for the rented apartment. Some banks now offer to make a deposit of 20% per annum or more. This is due, according to analysts, with an increase in the refinancing rate of the Central Bank, which rose to 17% in December. If we take the scenario discussed above as a basis, then from an investment point of view, the deposit will look more profitable than investing in an apartment - it is unlikely that, in this case, it will rise in price by 20% per year, and then by the same amount, while in the case with a deposit, interest is accrued by the bank in progression.

The second scenario assumes that real estate prices will still rise. This willprimarily due to inflation. It is expected, for example, that by summing up the results of economic development in 2014, the corresponding figure will exceed 11%. Even if the demand in the real estate market is not sufficiently dynamic, experts believe that an increase in housing prices, in general, can be expected in proportion to inflation. Is it worth taking out a mortgage now, given this scenario?

Most likely, the guidelines for a potential buyer in this case will be approximately the same as in the case of the first option. That is, you can take out a loan for an apartment, if at the moment the housing is being rented, and interest payments will be the same or not much more than the rent. Or make a deposit for the amount that is collected for the initial payment, receive interest and pay for the rent due to this.

The third scenario involves a decline in housing prices. This will be due, in turn, to a possible imbalance between supply and demand in the market, which can be fueled by the fact that in recent years Russia has introduced a significant stock of new buildings. Although a significant part of the apartments built within the framework of such projects are shared, a significant percentage of them will subsequently be sold at market prices or, for example, resold. This could create what some economists believe is an oversupply in the housing market.

Probably if this scenario is followed, it doesn't even make sense to wonder ifShould I take out a mortgage now? Of course, this will not be the best option. When it comes to finding profitable investments, you can pay attention to deposits. If there is a need for housing, it is better to rent it for the time being, especially since the corresponding rates, as a rule, are reduced following the sales segment.

Factors are interconnected

Of course, each of the scenarios in the real estate market largely depends on the situation in the banking sector, and on the level of solvency of citizens. Therefore, we can say that the crisis factors discussed above directly affect the housing market, as well as any other. At the same time, experts still believe that the objective market mechanisms - supply and demand - are formed under the influence of the above factors to a limited extent. Criteria that reflect the real need of Russians for certain types of housing are very important, taking into account the impact of migration processes, changes in apartment construction technologies, etc.

USD exchange rate factor

Some experts, at the same time, consider it acceptable to single out the fourth scenario, which implies a significant increase in real estate prices due to the impact of a unique, in a sense, factor. As you know, the dollar exchange rate against the ruble almost doubled in 2014. However, most of the currencies of other developing countries, including the CIS states, have not fallen in price so much against the American one. As a result, the average salary in dollars in Russia and, say, inKazakhstan, has practically leveled off, or even, perhaps, has become inferior to that installed in a neighboring country. As a result, apartments in the Russian Federation, in terms of, say, Kazakh tenge, have become noticeably cheaper in a number of segments than those of their neighbors. Citizens of Kazakhstan eventually come to Russia and buy housing here. This trend, as some economists suggest, may continue, and also intensify due to similar activity of residents of other neighboring countries - Belarus, Azerbaijan, the B altic states, and possibly China. This may to some extent warm up demand for real estate and cause prices to rise in dynamics that exceed inflation.

Perhaps a person should study, when deciding whether to take out a mortgage, the opinions of experts regarding the fourth scenario, but only if he lives in a border town. That is, this option can be classified as localized.

Conclusions

Thus, we have identified the main factors that determine the crisis trends in the real estate market, and considered the main scenarios, the study of which will allow us to decide whether it is worth taking a mortgage on an apartment in the current market situation.

Let's try to summarize. So, there is a crisis in the bank lending market. Banks, in all likelihood, will not be able to issue loans with the dynamics that they did in previous years, and on the same terms of interest. Borrowers, in turn, will not always have an objective opportunity to pay their mortgages. The result is a decrease in demand. The reason for the banking crisis is the political situation. That's why,deciding whether to take out a mortgage now, when there are EU and US sanctions against Russia, we probably say no. We need to wait until the situation in the banks stabilizes, they will find new sources of loans to pay off their existing obligations, or the Government will help them with this.

The second factor that may influence the decision whether to take out a mortgage right now is the situation on the Russian real estate market. Economists identify three basic scenarios. This is the stabilization of prices, their slight increase, commensurate with inflation, or a decrease. Or, if a person lives in a border town, some increase in the cost of apartments.

Should I take out a mortgage? The pros and cons of this decision in relation to the current market situation are quite obvious. Among the positive aspects is the opportunity to profitably invest if demand grows in the near future. Economists, although they recognize the significant depth of the current crisis, believe that the situation will improve in the foreseeable future - due to a possible return in oil prices, import substitution, and diversification of the country's economy. Also, investing in real estate will at least ensure the safety of monetary investments in relation to inflation. Among the negative sides of the decision to buy a home - the probability of falling prices or the absence of their growth is quite high. Neither one nor the other will be profitable for the buyer of the apartment. Also, most likely, at this stage, banks will not be able to offer the borrower comfortable conditions forpercent.