The Central Bank of Russia (CBR) has published its mortgage data for September. The blended mortgage rate declined 24bp m/m and 20bp YTD to 9.68%. Origination of new mortgages was RUB700bn ($10.9bn) in 3Q19, implying an 8% y/y correction vs. flattish trends in 1H19.

The fall in mortgage rates expands the potential market for real estate purchases, and the ongoing fall in interest rates has been driving the growth of the residential real estate business. The recent 50bp cut in overnight rates by the central bank is expected to feed through into the residential real estate business in the coming quarter. 

The mortgage rate has followed the path of the key rate, moving closer to the record low 9.41% of September 2018. That time, the key rate was 7.5%, vs. 7.0% for September 2019. During October, the CBR cut the key rate a further 50bp to the current 6.5%, implying additional downside risk to the mortgage rate. New origination is cooling, in line with the broader real estate market. Demand was front-loaded prior to the implementation of escrow accounts on July 1, and new mortgages surged 50% y/y in 2018, but were flattish in 1H19 from a high base.

For listed developers, the share of mortgages in sales reached 34-66% in 3Q19 and overall sales reflect the potential of existing portfolios. VTB Capital (VTBC) analysts see the upper limit being the 80% seen in DM economies. For the cooling real estate segment in Russia, declining mortgage rates remain among the prime tailwinds. Participants from the mass-market segment estimate that a 50bp lower mortgage rate increases the number of eligible mortgage takers by some 10%. The VTBC macro team forecasts a key rate of 6.0% by YE20, implying mortgages at 7.5-8.0%.