Why Russia Has The Highest Mortgage Rates

The interest rate on mortgages reflects the level of economic development and speak about the inflation and investment risks in a particular State.

Today, the lowest mortgage rates are typically found in Western Europe and the United States. For example, in the EU mortgage rates vary from 3 to 9% per annum.

According to the European Central Bank, the highest euro zone mortgage rates are in Cyprus. In March, the average rate for the Cyprus mortgage was 6.78%, although it fell from February's 7.06%.

According to Natalia Mikhailova, commercial director of LLC «First Mortgage Agency», mortgage rates in Spain, fell to 3.25% from the 2008 September's 6.25%.

Mortgages in Sweden are issued for 10 years and are currently around 5.19 percent. However, mortgage is not a popular financial product in this country, partly because of the difficulties to buy real estate.

In Switzerland, mortgage loans are issued to a maximum of 15 years, the rates range from 2.15% (for loans of one year) to 4.25% (15 years). Generally in smaller countries mortgage rates vary. They are assigned to each individual individually.

In the Czech Republic the value of mortgage loans depends on the length of a fixed interest rate. Duration of fixation may be 1, 3, 5 and 7 years. In doing so, the smaller the duration of fixation, the lower the credit interest rate.

Mortgage rates have significantly declined in UK. The rates are tired to the Bank of England interest rates in many private banks. So when the Bank of England reduces the rates, the mortgage rates fall as well. If two years ago, the base rate stood at 5.5%, it is now at 0.5%, which is the minimum value since the founding of the British Central Bank in 1694. Record low cost loans and guarantees of bank assets by the British Government led to a slower decline in housing prices, which happened in the last year.

Mortgage rates in the United States in spring of this year reached to all time lows. However, according to HSH Associates, interest rates on 30-year mortgages rose in June to 5.79% compared to 5% in previous month. Natalia Mikhailova indicates that the increase in interest rates may worsen the prospects for recovery of the U.S. housing market and reduce the wave of refinancing loans, the formation of which is the main goal of the plan to stimulate the economy, developed by the administration of U.S. President.

In China, mortgage rates are now at 7-9% per annum.

In regard to Russia, the country is characterized with the practical unavailability of mortgages. Average rate for the ruble mortgage, according to analyst report AHML of June 29, 2009, amounted to 19.82% per annum. U.S. dollar based mortgage rates are in the range of 15.52%. Consider the fact that in the recent months the mortgage loan rates have considerably stabilized in Russia due to the government pressure on the banks influencing the monetary policy to stimulate the economy.

Natalia Mikhailova see the rise in the cost of credit as the cause of the high mortgage rates in Russia. "The government action was not enough. We don't have cheap source of funds. The banks received bailout money from the government, but did not inject it in the mortgage market. Some banks greatly did reduce the mortgage rates, but made it much tougher to qualify for mortgage loans. Federal loan standards have become less accessible and affordable for an average Russian. In Russia, the higher inflation and mortgage rates may not be lower than the current level. Exceptions are possible only for a short period, which is about one or 1.5 years."

The whole world has reduced the mortgage rates and the interest rates in general, in order to stimulate demand. Today, the refinancing rate in the world teeters on the level of 2-4%. The Central Bank of Russia, as is known, holds the figure at 11.5%.

Whatever the case, without the mortgages we can revive the housing market and stimulate sales. A recovery of mortgage lending is dependent on many factors. The major factor is the government. The British experience can be a model for Russia. The regulator is the state, which has a power tool called interest rate. If Russia goes to that direction, the country may see all time mortgage rates, which will give the housing market a real boost.

By Armen Hareyan
Source: Housing Market News