Analysis of Factors Influencing Mortgage Affordability

The question of mortgage affordability has been discussed a lot lately as recent macroeconomic shocks for Russian economy caused increase in interest rates that at some point went up to a such extent (with refinancing rate peaking to 17%), that made it almost impossible to by an apartment for households, that did not have initial sufficient amount of savings. To solve this problem government has launched several programs aimed to a) support households that could not afford such expensive mortgages and b) help to attract finance to house construction industry to increase supply of new housing, which will eventually help to decrease real estate prices, that were historically high in Russia. Indeed, according to Numbeo database house prices are so high in Russia, that one would need to work 23 years to buy an average sized apartment in Moscow. As housing affordability is largely determined by mortgage affordability it would be interesting to research how is it influenced by various factors, particularly why mortgage market in Russia and mortgage rates differ so much from other countries (see Figure 5). Therefore, in my paper I aim to analyze factors that might affect mortgage affordability in Russia. To do so I will first cover the theoretical base of mortgage lending: what are the specific characteristic of mortgage products and models that might influence its affordability with reference to foreign experience. Secondly, I will cover the current state of Russian mortgage system and some country specific factors of mortgage affordability. Finally, I will use empirical models to estimate the influence of identified factors on each of Russian regions using panel data for 2010-2016 period. Further, I will try to capture the effect of banking branch localization in region as a supply side effect of mortgage affordability.