The Committee on Standards of Credit Organizations approved a Standard for the Protection of Rights and Legal Interests of Mortgage Borrowers, coordinated with the Bank of Russia.
The main goal of the document is to minimize the spread of high-risk mortgage lending schemes and to ensure that banks provide borrowers with more detailed information about the terms of the loan and the associated risks.
The Standard specifically aims to prevent cases where banks direct funds issued for a mortgage loan not to an escrow account, but to a letter of credit, where they may remain unused for a long time. The prohibition on the long-term placement of mortgage borrowers’ funds in letters of credit will reduce risks for citizens, as funds in letters of credit, unlike those in escrow accounts, are not protected by the deposit insurance system.
The amount that will be returned to the buyer after purchasing an apartment (cashback) cannot be counted as part of the down payment. The purpose of this requirement is for the buyer to pay the down payment solely from their own funds, as the less they have, the higher the risk that they may overestimate their capabilities and ultimately lose both their money and the apartment.
The bank will not be entitled to receive compensation from the seller (developer) for establishing a reduced interest rate on the mortgage if this leads to an increase in the price of the property.
The mortgage Standard establishes principles for determining the terms of the mortgage agreement, describing what the lender should consider when setting the loan amount, term, possible fees, and other parameters. It is recommended that mortgage agreements be concluded for a term not exceeding 30 years and for an amount not higher than 80% of the fair market value of the mortgage item.
The document also describes the information that the bank is required to disclose to the borrower in an understandable form before concluding the agreement and the risks for which they should be warned. The credit organization is obligated to answer the borrower’s questions regarding the mortgage loan and related services.
The Standard will become mandatory for banks starting January 1, 2025, and will apply to agreements concluded after this date. As of January 1, banks will also be required, when receiving compensation from the borrower for establishing a reduced interest rate, to inform them honestly about the difference in the total cost of the loan, so that when making a decision, the borrower understands whether this service is beneficial for them. Additionally, the bank will need to return any unused portion of such compensation in the event of early repayment of the loan.
The Committee on Standards was created in May 2024, and two-thirds of its members are representatives of banks and banking associations.
Preview photo: Valentin Antonov / TASS