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11 Dec, 2008 13:25

Mortgage relief proposal looks for details

Russia’s Prime Minister, Vladimir Putin, has called on the government to work out the details of how the state can help Russians to pay off mortgages. Experts welcome the initiative, but say the devil is in the details.

Prime Minister Putin is convinced those who lost their jobs in the crisis should get breaks on their mortgage payments in 2009.

The proposal sees the state compensating the banks through the Agency for Home Mortgage Lending.

It’s clear the government wants to help. But considering it has already burned through nearly 20 percent of its foreign-exchange reserves.  The question is can it afford to?

Speaking at the Eurasian Economic Community meeting on Thursday, Finance Minister Aleksey Kudrin said it certainly can.

“Any amount that the state would end up spending for mortgage compensations in 2009 is more than affordable. The Agency for Home Mortgage Lending has more than enough money to do it.”

The agency is the state’s main instrument for developing the home-loan market. Richard Hainsworth, from RusRating says, if effectively implemented, the law could boost mortgage lending in Russia

“If a bank knows that a good staff member or somebody who is currently working, and they are protected in terms of mortgage relief, by some type of social insurance law, such as this one, then they will be more inclined to provide mortgages to such people.  And that will increase the desire of banks to give mortgages.” 

But others say the devil is in the details. Many in Russia lose their jobs not through being fired, but by quitting under pressure. They will not qualify for state support. Rustam Botashev, Analyst, at Unicredit Aton explains.

“In this case I would guess, that those people will not be able to get any support from this agency. It costs almost nothing but provides a lot of confidence in the Government.”

Experts estimate mortgages in Russia total less than 5 percent of the GDP, compared to over 80% in the United States.

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