Mortgages become more affordable as banks reduce rates

Friday has seen three banks, VTB, DeltaCredit and RosEuro Bank, slash their mortgage rates to new lows.

 VTB has announced that interest rates on all mortgage programs will be cut by between 0.6-1.95 percentage points. Now the cost of borrowing starts from 9% for rouble loans and from 8.45% for foreign currency loans.

Additionally, corporate and payroll bank clients will have an additional 1% discount on basic rates. DeltaCredit has reduced the cost of borrowing in roubles by 0.75 percentage points offering 10% mortgage programs under a pre-New Year promotion.

RosEvro Bank is reducing its current mortgage rates by 1-1.5% for its main programs, making for a lowest rouble mortgage rate of 11% and 9.5 % in foreign currency, with a mandatory initial payment of 15% of the apartment cost.

Banks have followed market leader Sberbank which cut its rates to 9.5% in the middle of October. Leila Sharifullin analyst at Alfa Bank believes that the difference in the price of funding has limited the ability of other lenders to completely follow the extent of Sberbanks cuts

“Sberbank is the benchmark for retail lending, and its actions are repeated with a time lag by other banks. Albeit many can not compete with the biggest bank in the country having the lowest cost of funding.”

But 9% rouble loans are often a marketing ploy. 

The DeltaCredit mortgage rate of 10% is available under a program with a combined rate during the first 7 years. A loan with a fixed rate would cost 1% more.  Sberbank provides mortgage under 9.5% only to its payroll clients with additional conditions.

The real price of credit issued by major banks is much higher than in advertisements noted Sergei Ozerov, chairman of the board of Societe Generale group mortgage bank DeltaCredit

“It is necessary to separate the marketing step from the real rate. You can promote the offer with a rate of 10% and with an initial payment of 10%. But when a customer comes to the bank and starts to count and points out that the announced conditions are not equally shared. We have, for example, a program which offers pledged apartments for sale with 2% rate below the baseline. That does not give us a right to announce that we have 9.5% rates in rouble loans. It would be untrue. With regard to further reduce the cost of borrowing, we expected that rates will continue to decline in the 4Q 2010. But because of the summer fires leading to a surge of inflation, interest rates stuck on their bottom line. I think in 2011 average rates will remain at a current level or slightly decrease”

Experts believe better conditions are offered by the Agency for Mortgage Lending. According to the information on its official site, rates for mortgage programs starts from 10.5% for the primary market apartments and from 11.5% for secondary market apartments. These rates are not the lowest at the first glance but they do not hide any extra commission and do not depend on the borrowing period.