Russians are facing a catch 22 situation in mortgage and housing with small – or good, who knows? – chances to break the vicious circle.

 

It’s easier to rent an apartment than purchase one. A rented flat, however, robs you of any hope for your own home. The pay is so high and ever increasing – at the wish of a whimsy landlord – that you cannot enjoy it.

 

The routine and most favorite solution in other countries would be a mortgage scheme. But not in Russia, at least so far.

 

Mortgage loans do not exceed 6% in the total number of loans issued to natural persons. Some 160 banks have the offer, with 5 biggest ones controlling 70% of the market. The average loan amount is 40,000 roubles, while the average interest for rouble loans is 14-18%. As many as 43,000 mortgage loans were issued in 2004.

 

Mortgage is not yet widely used for a number of reasons, Russian President acknowledged in the live televised question-and-answer session with the Russian citizens on September 27, 2005.

 

These are, specifically, “low income of the population, high inflation and lack of legal framework,” the president said. “These and some other issues need to be resolved,” and “given the state’s increased opportunities, mortgage becomes one of the priority items on the agenda”.

 

Actually, the situation is a bit more complicated. Apart from the reasons listed, people are forced to report the official salary and make a down payment of up to 30% of the total price.

 

With murky payment schemes widespread, it is challenging to get involved in any of the programmes. Some of the banks have relaxed their requirements but are they reliable? And, to cap it all, during the boom people are being cheated on by real estate companies selling same flats to different people or going bankrupt before the construction is actually finished.

 

The governmental policy is pretty controversial. The president makes promises but the government considering his proposals often opts for some incomplete steps ruining the whole concept.

 

Anyhow, the high-profile pledge was that the number of mortgages would exceed one million annually by 2010. Stabilization Fund is a candidate for the possible sources of funding, at least a pillar to back the State Housing Mortgage Agency, run by Alexander Semenyaka.

 

Some experts say that the measures taken might boost mortgage development. State guarantees will reduce risks for the banks, which will, therefore, be able to extend repayment periods. By the end of 2006, interest rates on rouble mortgages will drop to 12%. Valery Zubov, frist deputy chairman of the Parliament's committee for lending institutions and financial markets, predicts that by 2010 loans will be offered for up to 30 years with interest rates of 5-6% and a 10% down payment.

 

Other experts, however, doubt such measures will effectively solve the housing problem. A sharp reduction in interest rates may cause real estate prices to soar rather than bring them down. There is not enough housing construction in Russia, and this can jeopardize government's plans. According to Minister of Regional Development Vladimir Yakovlev, the country annually builds 40 million sq m of housing, while it needs more than 145 million.

 

"If we increase demand for mortgage financing with federal funding, the result will be a surge in prices," says Sergei Kulik, head of the Federal Agency for Construction and Communal Housing. Yevgeny Bushmin, chairman of the Parliament's budget committee, says, "We have to put a huge number of apartments on the market. Otherwise the system will not work even if the government compensates for high interest rates."

 

This way or other, the population’s anger and frustration is gradually growing and some one has to care and take the responsibility.