Contrary to the established practice, Promsvyazbank, one of the largest mortgage banks, will issue loans without a down payment. Other banks also offer this scheme, but only in conjunction with developers, who compensate for the costs of additional reserves. Experts and bankers note that the risks of arrears in the case of Promsvyazbank are higher, but such programs can quickly increase the volume of the portfolio and the client base.
Kommersant discovered on the website of Promsvyazbank (PSB), which is in the top 15 in terms of mortgage lending (ninth place; RUB 54.3 billion in January-July 2021), a loan program for new buildings without an initial payment. The bank explained that it is aimed at “borrowers who have a sufficient level of income to comfortably service a mortgage, but who did not manage to accumulate an initial payment,” as well as those who want to improve their living conditions by selling old housing to purchase a new one.
This practice is rare on the market. In fact, this is the only such offer among the largest banks without partner projects with developers. For example, the PIK Group of Companies together with VTB have a mortgage without an initial payment, Samolet with Otkritie Financial Corporation and JSB Rossiya, FSK with Absolut-Bank (previously the bank was a partner of the PIK Group). Moreover, such offers are temporary in nature, as market participants explain, and do not apply to all of the developer’s facilities.
As a large bank explained to Kommersant, when issuing a mortgage with a zero contribution in partnership projects with developers, the developer will compensate for the costs of additional reserves. But if the bank implements the program itself, the costs are borne by it.
Kommersant discovered a mortgage offer without a down payment also at Sovcombank. But they explained that the project launched in 2019 “turned out to be unsatisfactory and was closed along with the landing page,” and its availability on the web was a technical failure.
Issuing such a mortgage without a partner can only be profitable at a higher rate, or if the bank cannot realize its plans for issuing and is looking for any niches, a representative of a large credit institution believes. Olga Ulyanova, senior loan officer at Moody’s, also believes that the motivation of banks that launch products with very low down payment may be the desire to win a large market share “at any cost, including future credit losses” overdue debt is higher.
According to the Central Bank, in the first half of 2021, the share of mortgage loans provided with an initial payment of less than 10% was 1.5% for loans secured by equity participation agreements and less than 1% in other mortgages. Such mortgages are subject to increased premiums to risk ratios and are applied throughout the life of the loan.
«The level of defaults among borrowers with a low down payment is significantly higher than for the rest of the loan portfolio, ”the Central Bank said.
In addition, they explain there, the presence of a down payment limits the risks of banks associated with a possible correction in prices for residential real estate and the need to sell the collateral for non-performing loans.
“For banks, a mortgage with a low down payment or even zero is unprofitable, since it consumes more capital,” Ms. Ulyanova believes. However, according to S&P analyst Roman Rybalkin, “the transition to a new procedure for calculating risk will allow banks, including PSB, to free up part of the regulatory capital and reallocate it for other needs.” At the same time, he notes that the bank has a capital reserve.
Bankers are wary of zero down payment mortgages and are in no hurry to replicate a competitor’s experience. “The introduction of such programs for a wide range of borrowers can negatively affect the level of loan delinquencies in the market, so we do not plan to change this criterion on our part,” VTB explained. Alexei Kramarsky, head of the credit risk management of the retail segment of Raiffeisenbank, added that for banks the initial mortgage payment is “a marker of the riskiness of a transaction: the larger it is, the more confidence in the borrower.”