The Banking Standards Committee has adopted the Standard for Protecting the Rights and Legitimate Interests of Mortgage Borrowers, approved by the Bank of Russia. The new standard aims to minimize high-risk mortgage lending schemes and ensure banks provide borrowers with detailed information about lending terms and associated risks.
The document targets practices where banks transfer mortgage funds to a letter of credit instead of an escrow account, holding them for extended periods without use. This practice increases household risks since letter of credit funds are not protected by the deposit insurance system, unlike escrow accounts. The new standard prohibits using letters of credit to hold mortgage borrowers’ funds for long periods.
Additionally, the standard forbids recognizing cashback amounts returned to buyers after purchasing a flat as part of a down payment. This measure ensures that buyers use their own funds for down payments, reducing the risk of overestimating their financial capacity and potentially losing both money and property.
Banks will also be restricted from receiving fees from sellers (developers) for setting reduced mortgage interest rates if it leads to an increase in real estate prices.
The standard outlines principles for developing mortgage contract terms and conditions. It recommends concluding contracts for no more than 30 years and for amounts not exceeding 80% of the fair value of the mortgaged property. It specifies what data and risks banks must disclose clearly to borrowers before signing a contract, requiring credit institutions to answer borrowers' questions about loans and related services.
From January 1, 2025, this standard will become mandatory for banks, applying to contracts concluded after that date. Banks will be required to inform borrowers about the cost differences when receiving fees for reduced interest rates and return unused portions upon early loan repayment.
The Banking Standards Committee was established in May 2024, with two-thirds of its members representing banks and banking associations.
Preview photo: Valentin Antonov / TASS