Translation. Region: Russian Federation –
Source: Central Bank of Russia
An important disclaimer is at the bottom of this article.
The Central Bank's rate cut will not lead to a jump in housing prices.
The Bank of Russia began easing monetary policy in June, gradually lowering its key rate to 17% from a record high of 21%. Elizaveta Danilova, Director of the Financial Stability Department and member of the Board of Directors of the Central Bank of Russia, discussed in an interview with RIA Novosti how the rate cut will impact the housing market and prices, where Russians should invest their savings, and what risks the regulator sees for the financial system.
You're one of 14 members of the Central Bank's board of directors who participates in key rate decisions. What do you focus on first when formulating your own rate position, and what indicators do you present?
"I think we all look at inflation and inflation expectations, first and foremost. But we also consider many other factors, including lending rates, the state of the labor market and our economy as a whole, as well as external conditions."
In recent years, the Financial Stability Department has been preparing its own materials for interest rate meetings. Currently, they focus on credit risks for the economy, because in a high interest rate environment, monitoring the financial health of companies is especially important. We analyze the state of individual economic sectors and pay particular attention to the financial position of 90 of the largest companies, building financial models based on them. We also communicate extensively with banks, which, of course, know their borrowers well, so we complement our assessment with their perspective on the loan portfolio as a whole. We present this data to the board of directors so that when making interest rate decisions, our colleagues have a more detailed understanding of current trends at the individual company level.
As head of the financial stability department, you probably always advocate for rate cuts. Is raising the rate stressful for you?
"Cutting the interest rate isn't always beneficial for financial stability. A prerequisite for financial stability is economic stability and low inflation, and we ensure precisely that by making interest rate decisions. And sometimes, raising the interest rate is absolutely crucial to maintaining financial stability. Recall February 2022: back then, the interest rate was sharply increased to mitigate inflation risks, of course, but also to address financial stability risks, specifically the outflow of funds from ruble deposits and the growing demand for foreign currency. And the decision worked; the outflow was quickly halted."
In general, the interest rate is a tool for influencing demand and controlling inflation. To prevent the accumulation of risks in the financial system, particularly among banks and borrowers, we use other tools, such as regulation, known as macroprudential policy.
Now that the rate is being lowered, do you breathe a sigh of relief? Are the risks to financial stability reduced?
"The source of risks to financial stability isn't the rate hike, but the accumulation of vulnerabilities and excess debt, not necessarily at the level of the financial system as a whole, but within specific groups of borrowers or financial institutions. Our goal is to prevent this from happening. But yes, you're right, a gradual rate reduction certainly eases the debt burden for both companies and individuals."
On the other hand, I can't help but note that the key rate isn't the only factor affecting companies' financial performance. For the export sector, the primary pressure on profitability is currently coming from external conditions. This includes falling oil prices and a decline in export volumes. Sanctions are also having a negative impact, increasing business costs.
How do you assess the current level of debt burden among Russian companies? Has it already started to decline?
Last year, corporate debt levels, or the ratio of debt to earnings before interest, taxes, depreciation, and amortization, increased due to the active acquisition of new debt. This year, the debt ratio continued to rise as companies' profits declined. According to Rosstat, for January–July 2025, the overall financial performance of companies in the economy (profit minus loss) decreased by 12.6%, excluding financial institutions.
Fortunately, we started with a fairly low level of debt, with a good margin of safety, so most companies do not expect any problems.
The key rate has only just begun to decline, so the interest burden will decrease gradually. But again, this is only one factor. For many companies, it is not the key factor at all.
– Speaking about individuals, their primary interests are mortgages and deposit rates. How do you assess the state of the mortgage market, and what are its prospects?
"We've seen a growing revival of mortgage lending in recent months. Looking at monthly issuances, they were small in the first quarter, at 200 billion rubles, with 85% of those being through preferential programs."
In the second quarter, the amount of mortgage loans issued increased to approximately 300 billion rubles. In August and September, the volume of loans issued totaled approximately 400 billion rubles. Moreover, non-preferential mortgage loans issued increased 1.5 times compared to the second quarter, amid a gradual decline in rates.
Demand is recovering, and we see that the share of installment plans in July and August is somewhat lower than it was at the beginning of the year or in the second quarter. Although a large volume of installment plans remains, mortgages account for the majority of sales.
– How have high rates affected the housing market?
We see that developer sales haven't declined that much. Sales from January to September totaled 3.3 trillion rubles in monetary terms, which is only 5% lower than last year. It's important to understand that we're comparing this to a period of very active growth last year, when the mass preferential mortgage program ended on July 1st. At that time, we saw panic buying. Therefore, a 5% decline in these conditions doesn't seem significant.
How do you monitor the quality of mortgages? Is it deteriorating?
– The share of bad loans in mortgages as of September 1 was 1.6%. This is still low, but this figure has doubled in the past year. This is due to loans issued in 2023 and the first half of 2024, when banks were lending to borrowers even with high debt burdens.
In the private homebuilding sector (15% of the mortgage market), the rate of bad loans is six times higher than for other mortgages. As you may recall, there were cases of fraud by a number of developers, where a person would take out a mortgage to build a house, the contractor would receive the money, but the house would never be completed. These loans would then become delinquent.
To stop this practice, changes were made to the legislation, and as of March 1 of this year, raising funds from citizens for individual housing construction is only possible through the use of escrow accounts. This has certainly improved the market.
– What indicators do you track to assess mortgage risks?
One of the key risk indicators is the share of loans issued to individuals with a high debt burden. Recently, thanks to our measures, banks have begun to assess borrowers' creditworthiness more conservatively. For example, at the peak of last year's lending boom, the share of loans issued to borrowers who spent more than 80% of their income on debt repayment was 47%; now it's only 6%.
We also monitor the share of loans with a down payment of less than 20%. At its peak in late 2022, it was 54%; now it's only 5%. This means the quality of loans issued has improved, and the chances of such mortgages going into default are much lower.
We're closely monitoring the changing profile of mortgage borrowers. For example, we're now seeing more loans in addition to their mortgages. While five years ago, mortgage borrowers typically had no other loans, now the average person has one additional loan.
"Because he doesn't have enough to live on? Or, conversely, because he can afford something else on credit?"
"Apparently, it's because banks are actively offering people other types of loans. Typically, these are credit cards. In general, we don't demonize loans; they allow people to buy things sooner that they could have bought much later without a loan. But it's important not to accumulate excessive debt."
– Do you have any data on how many people we have with mortgages?
At the end of the second quarter of 2025, the number of mortgage borrowers was approximately 10 million, a 7% increase over two years. This figure includes co-borrowers, as typically, if it's a family, there are multiple co-borrowers on a loan. We see this from credit bureau data, which we analyze to assess risks. For example, we look at the extent to which mortgage borrowers use other loans as a down payment. This is an important indicator, because if a person can't save up these funds themselves, their debt burden increases dramatically, increasing the risk of defaulting on their loan and losing their home.
Currently, the share of mortgages where people could take out a down payment is 3.4%. Two years ago, it was higher – 6.4%. We recommended that banks verify that the down payment was made from the borrower's own funds.
You mentioned the need to verify the income of people taking out installment plans. Are such assessments already being done? How is this work going, and what problems have you encountered?
– At the beginning of June, we sent a letter to banks recommending that they monitor installment payments in the projects they finance.
It's important to understand in advance whether a buyer will be able to obtain a mortgage if they don't have the funds to pay off the developer. Banks currently report that they don't have a system for assessing the debt burden of people purchasing housing with installments. This is a relationship between the developer and the apartment buyer; banks have no formal basis for calculating the debt burden. However, banks agree that this should be done, as it potentially represents underreported debt. Therefore, when discussing the bill on installment plans with the construction sector, we insist that information about installment plans must be submitted to the credit bureau. The debt of individuals on installment plans amounts to approximately 1.5 trillion rubles, a figure that has increased 1.5 times since the beginning of the year. In recent months, we have seen a decline in these practices. However, a large volume of installment plans has accumulated, and a significant portion of this is for the purchase of economy and comfort housing, rather than luxury housing. This suggests that many buyers are planning to eventually switch to a mortgage. However, mortgage approval with favorable terms isn't guaranteed. The bank may refuse, or the payment may be less than expected. Therefore, it's important to approach home purchases with installments carefully. To keep an eye on the situation, we regularly inquire with banks about installment amounts and repayment schedules.
– What will you do if you see that the volume of installment payments is growing?
"As I said, recently, the share of mortgages has been growing, while installment plans have been declining. If we saw it increasing, we, together with our supervisory departments, would intensify our audit of banks' compliance with our installment plan recommendations. If the share of installment sales in a quarter exceeds 20%, the bank should consider increasing its reserves for such a project, as it is riskier."
– What do you see as the risks of project financing? And how are the indicators changing?
– Project financing for developers is currently one of the fastest-growing segments of the corporate portfolio. Its volume already amounts to almost 10 trillion rubles, or 11% of the corporate portfolio.
Here we have a traditional indicator: the ratio of outstanding debt on construction projects to funds held in escrow accounts. This indicates how many construction loans are secured by escrow account proceeds, i.e., purchases. This ratio is gradually declining, but the situation remains stable: the coverage of issued loans by escrow accounts is approximately 70%.
Another traditionally important indicator is the project's sell-out to construction completion ratio; the current level of 69% is considered good. Another significant indicator is how much of the housing under construction has already been sold during the construction phase. This figure hasn't changed much, remaining at 30-35% across Russia in recent years (currently 32%).
– So, we don’t have any significant problems in the housing market?
"We don't see any major problems. Of course, the situation may vary; there are regions where the sales rate is worse. For example, there's the Moscow market, where sales rates have traditionally been very high (49% of housing under construction has already been sold), and there are no problems at all. Then there are regions where there are significantly more unsold apartments and more signs of overstocking. For example, in the Krasnodar Territory, which experienced a boom in previous years, the sales rate is 21%, in the Rostov Region it's 24%, and in the Leningrad Region it's 25%. These regions attracted significant demand through mass preferential mortgages. Developers responded by commissioning more housing, so the unsold stock there is higher. But this situation will gradually resolve, too, because fewer new projects are already being commissioned, and the supply will gradually be absorbed."
– And in Russia as a whole, do you see a significant reduction in new projects?
The number of new projects fell by 16% from January to September. This is a moderate decline after the overheating of recent years. However, the volume of ongoing construction has increased by 5% since the beginning of the year, due to a slowdown in construction and the postponement of deadlines.
Developers say that, due to a decline in new construction launches, we could face higher price increases in 2027. On the other hand, if this is widely known, then developers will be more motivated to launch new projects to take advantage of this price increase. Therefore, some kind of intermediate situation is likely: the decline in construction launches will be less than developers currently fear, and then price increases will be more moderate.
– You didn't mention mortgage rates among the important indicators the Central Bank monitors. Is that not important?
Considering that currently, approximately 80% of loans are issued under preferential programs, rates were determined by them. But when the key rate gradually declines, market mortgages will recover. After the last key rate decision, banks have already announced rate cuts, and market mortgage volumes have begun to grow. It's crucial for us to ensure that, as the key rate declines, people can apply for a rate reduction from the bank that previously issued them a loan at a high rate, or find more favorable offers from other banks and refinance their loans.
This practice was widespread in 2019-2020, when interest rates were falling and loan refinancing was widespread. We are currently adjusting our regulatory approaches to avoid hindering such refinancing. If a borrower refinances a loan on more favorable terms, that loan will not be included in the macroprudential limit calculation and will not limit the bank's ability to increase mortgage lending. We expect this regulation to be adopted by the end of this year.
Developers warned that as the key rate declined, people would start withdrawing money from deposits and rushing to buy housing. This was also presented as a factor in future price increases. How justified are these expectations?
We believe that lowering the key rate will not lead to negative consequences such as a sharp rise in housing prices. First, we will reduce the rate gradually and ensure that ruble deposits remain attractive and that people's savings behavior remains strong. We take these factors into account when making rate decisions.
Secondly, while it's true that housing can draw some funds from deposits, there are other areas where people can invest their money. These include stocks, bonds, and other financial market instruments. In 2025, people are actively buying bonds to lock in high returns for several years: investments in OFZs and ruble-denominated corporate bonds have increased by one trillion rubles since the beginning of the year.
Thirdly, developers themselves say they have unsold housing, and this additional demand will only help them. If demand meets supply, there's no reason to expect significant price growth. And we mustn't forget that we have a secondary housing market, which has been less attractive in recent years due to high rates.
Therefore, we expect that the reduction in deposit rates will not result in an increase in housing prices, and that some deposits will be redistributed between new buildings, the secondary market, and other segments of the financial market.
– In your opinion, where is it best for people to invest their savings in the current climate of falling interest rates?
"There's no one-size-fits-all solution. We believe that despite the interest rate cuts, they're above inflation, and ruble deposits remain attractive. Investing in foreign currency instruments carries currency risks associated with potential currency fluctuations."
We strongly advise against investing in foreign market instruments, as they pose sanctions risks for Russian citizens. For people living in Russia and with ruble income and expenses, it's best to keep their money in ruble-denominated instruments.
Elmira Musina, Mila Kuzmich, RIA Novosti
Please note: This information is raw content obtained directly from the source. It represents an accurate account of the source's assertions and does not necessarily reflect the position of MIL-OSI or its clients.