The average rate on mortgage housing loans in Russia declined in July 2017 to 10.94% from 11.1% a month earlier, the Bank of Russia said on August 6, well below the 12% cut-off level for state subsidies.

The government has been promoting homeownership and helping the banking sector out at the same time by subsiding mortgage loans at rates above 12% for the last two years. 

The goal was to bolster construction, one of the three big economic drivers as well as help struggling banks after the CBR prudential rules reduced their exposure to the highly profitable consumer lending business. Retail loans have only just started to recover after two years of declines.

And homeownership has the added bonus of boosting social stability as studies have shown homeowners are much less likely to protest than renters. President Vladimir Putin said several years ago that he wanted 60% of Russian citizens to own their own homes and thanks to the legacy of the 1991 privatisation of apartments Russia already has the highest share of homeownership of any country in Europe.

However, the programme was cut earlier this year after the average loan rate fell below the 12% marker set by the government.

The average mortgage rate in rubles provided for security of claim rights under participatory construction agreements fell from 10.71% in June to 10.53% in July of this year, Vedomosti reported.

In the first seven months of 2017 credit institutions granted 507,900 mortgages worth a total of RUB927.7bn, which is 20% more than a year earlier. As a result, the volume of mortgages broke the previous record set in 2014, according to the Central Bank of Russia. 

The mortgage portfolio increased from the beginning of this year by 5.3%, to RUB4.7 trillion as of August 1. At the same time, the share of foreign currency loans decreased by 0.5 percentage points, to 1.1% in the total amount of mortgage debt, or RUB54bn. In addition, the share of overdue loans remained low at 1.5% of the total outstanding debt or RUB72.8bn.