If you’re looking to buy Russian real estate, find out what mortgage rate options, costs and borrowing amounts are available for foreigners.
If you’re tempted by houses for sale in Moscow or Russia for investment or as your primary home, different mortgage options apply depending on whether you’re a resident or non-resident.
The Russian mortgage industry is still relatively young and many variations exist depending on which Russian bank or mortgage lender you’re dealing with. The government is also seeking to boost the Russian real estate market by offering mortgages rate incentives to those who buy property.
This guide explains the process of getting a mortgage in Russia, how much you can borrow, interest rates, mortgage calculators and costs of getting a Russian mortgage.
Should you buy real estate in Russia?
House prices in Russia have started to rise slightly after a period of little movement. The Russian Federal State Statistics Services (Rosstat) said that resale apartments increased in value by 0.7% in the second quarter of 2018.
A report published in November 2018 noted that Russians were piling into the property market, taking out 2,000,000 p. worth of mortgages in the first nine months of the year as loan rates hit an all time low. Approval rates, which were up around a third in 2018, reflected that the average mortgage rate had dropped almost half a percent to 9.41%.
As of January 2019, the average mortgage rate has risen to 9.66%, according to the Central Bank of the Russian Federation.
How much can you borrow in Russia?
The maximum you can borrow will depend on the bank’s loan-to-value (LTV) policy, but a general maximum is 80% of the sale price. Depending on the institution and type of property being purchased, maximum LTVs can range from as low as 40%, to as high as 85%.
As in most countries, potential borrowers also have income-based limitations. The new mortgage payments, plus other debts on worldwide assets, must not exceed 35% of the borrower’s net income.
Owing to the relative youth of the Russian mortgage industry, many banks offering mortgages in Russia prefer potential buyers to contact them directly for a consultation and quote – which is typically provided as a free service.
A few institutions, such as Uni Credit Bank, are starting to put online mortgage calculators on their website.
Cost of getting a mortgage in Russia
Compared to other global markets, Russian mortgages are light on fees and charges. In fact, many banks have no mortgage fees, underwriting fees or insurance requirements. On the downside, Russian interest rates are typically over 10% more than prime rates in other global markets.
Upon transferring the deed, buyers of Russian properties will typically be required to pay the real estate agent’s fee of 2–5%, the notary’s fee of 0.5–1.5% and a registration fee of up to 1%.
Taxes in Russia are very simple for Russian non-residents. Most income sources, including income from rental properties, is taxed at a flat rate of 30%. Expenses associated with the property – including mortgage interest – are not deductible or credited against the income.
Capital gains are considered normal income, and thereby taxed at the nominal 30% rate. Gains are calculated without consideration of acquisition costs, repairs and maintenance or other associated expenses.
The good news is that VAT is only charged on rental properties. Non-income producing residential properties are currently exempt from VAT.
Russian residents pay income tax of 13% on most sources of income, including rental income. As with non-residents, capital gains are taxed at the resident’s nominal rate.
If tax-residents are purchasing a new home or apartment, they may be allowed to deduct up to 2,000,000 p. of the property improvement costs and up to 3,000,000 p. on the construction loan interest.
While this opportunity may present significant tax savings, it may be taken only once per lifetime.
Documents for applying for a Russian mortgage
As the buyer must pay registration fees, one of the steps before seeking a Russian mortgage is to get a taxpayer identification number. This number associates the individual with tax payments, of course, but also with all duties, dues and other payments to any government service.
Most banks can respond to a mortgage application in one business week or less, so it is not necessary to initiate the application process before reviewing potential property acquisitions.
When you are ready to secure your mortgage, you will be asked to provide certain documents, such as:
- photo ID (such as a passport);
- property title documents;
- a statement from the Urban Registration Office documenting that the property is free from encumbrances, has no limitations on disposal, and the floor plan;
- executed purchase agreement;
- a description of the condition of the property.
You may also need to open a Russian bank account and have a deposited amount at least equal to the down payment.
As there are significant lending difference between Russian banks, you will also want to review with your selected institution any specific requirements they may have in addition to the above.
How to apply for a mortgage
A peculiarity of Russian mortgages is the freedom of the borrower to choose which denominating currency to use: rubles, US dollars or euros.
Not only might the choice of currency affect the terms of your loan, but your felt cost of the mortgage will be the effect of the prevailing foreign exchange rate and the currency in which you earn your income.
Thus, an initial step in applying for your Russian mortgage is to gain at least a passing familiarity with foreign exchange rates.
From a technical perspective, mortgages and the application process are generally the same across different markets.
The Russian market, however, seems to be far more geared toward a consultative application process rather than the multiple-choice process of selecting various products commonly offered in other Europeaen countries.
Thus, prospective borrowers can prepare for a consultation with their lender on the terms best suited to their situation rather than being fitted into the appropriate product.
Types of Russian mortgages
Another peculiarity of Russian mortgages is that the type of mortgage varies depending on the property type. The mortgage term when purchasing an apartment or flat, for example, will differ significantly from a mortgage used to purchase a country cottage.
However, regardless of the property type, most mortgages will be structured for principle repayment plus floating-rate interest.
There are several banks, mortgage lenders and financial institutions that cater to foreign investors (read about banking in Russia), such as: