Mortgage crisis warning

International markets slump as the U.S. mortgage crisis leads to fears of a broader credit crunch. Analysts say Russia could be in line for the same medicine.

While the international markets fret about a mortgage and credit crisis, banking analysts are warning about the quality of lending in Russia.

It comes as the country's second bank VTB says it has tripled its mortgage portfolio. 

The mortgage crisis has already hit America. The world’s biggest bank by assets HSBC issued the first profit warning in its 140-year history after thousands of high-risk, sub-prime borrowers defaulted on loans.

Now Russia’s top mortgage specialist DeltaCredit has warned of a potential systemic crisis in this country.

“In Russia, because it is a very new and developing market, we have seen that a lot of players are coming in. They are already trying to go into a risky business, when they are lending 100% LTVs and doing something that utterly is called sub-prime and you see the results of the sub-prime in the U.S.,” warned Laura Fainzilberg from DeltaCredit.

But the Head of mortgages at VTB argues aggressive lending is paying dividends at the moment.

“We believe Western banks here are too conservative. We do things a foreign  bank might not understand, such as credit without requiring initial installments. Whether this is justified or not, only time will tell,” says Anatoly Pechatnikov, Mortgages Director at VTB24 Bank, Moscow.

The lack of affordable housing in Russia along with the absence of a proper rental market has created a dangerous situation for mortgages among all but the very rich.

“They still cannot afford the accomodation that they would like with a mortgage, their disposable income insufficient to pay off the mortgage, and therefore we see some customers taking on mortgages that they’re unable to pay for, because the cost of housing is so very high,” pinpointed Richard Hainsworth, CEO of Global Rating International, Moscow.

Debt can be both a boon and a curse. The virtuous circle in times of growth – borrowers acquiring assets, lenders profiting and a liquid economy – turns on its head in a slowdown, for which experts say Russia is unprepared.