February 5, 2016 / 7:00 AM / 4 years ago

Rouble collapse heaps pain on Russia's dollar mortgage holders

MOSCOW, Feb 5 (Reuters) - Kirill and Zlata Fateev have stopped buying clothes, going to the cinema and are scrimping on food as the rouble sinks and their mortgage repayments soar.

The couple took out a U.S. dollar mortgage in 2007 after moving to Moscow from the southern Russian republic of Dagestan and blames the government for not helping as the rouble has fallen to record lows.

“My son is a champion of Moscow at martial arts and we’ve had to stop his training sessions,” Kirill told Reuters at a recent protest by foreign-currency mortgage holders in central Moscow.

“People like us are the backbone of this government,” he said. “But they aren’t listening”.

Kirill and Zlata’s difficulties are a reflection of how the weaker rouble has pressured household budgets already strained by an economic recession.

They also illustrate that while the rouble’s slide has helped the authorities shield state finances from the impact of lower global oil prices, it has hurt the tens of thousands of Russians with dollar mortgages.

Their plight undermines Vladimir Putin’s claim to have overseen a consistent rise in living standards in the 15 or so years since he came to power.

That is uncomfortable for the Kremlin in a year when Russia holds a parliamentary election.

STABILITY SHATTERED

Russians with dollar mortgages began taking to the streets to protest in late 2014, when the rouble first slumped to 80 to the U.S. currency amid panic on financial markets.

But their protests have yielded few results.

The central bank in January 2015 advised banks to convert their clients’ dollar mortgages into rouble ones using more favourable exchange rates but gave no firm orders.

Putin said in April that year that any government help for foreign-currency borrowers should be no greater than for those who had borrowed in roubles.

Kirill, who works as a colour correction artist in a publishing firm, said those were half-measures.

“Putin says foreign-currency borrowers took on risks, but you need to understand what risk is. The failed policy of our government, is that our risk?”

Zlata, an administrator at a furniture firm, said she used to believe the government could ensure a stable currency but that vision had been shattered. “We feel defenceless,” she said.

Some economists say Russian officials are right to tread carefully with the problem of dollar mortgages, however.

They warn about the dangers of forcing banks to convert foreign-currency loans into roubles, as such a move would contradict free-market practices and add to losses in the banking sector.

Both domestic and foreign-owned banks offered dollar mortgages to Russian clients, especially in Moscow and St. Petersburg before the 2008/09 financial crisis.

But banks have practically stopped issuing such mortgages in recent years as the central bank has tightened risk rules.

Banks have rejected claims they encouraged their clients to take mortgages in foreign currency in the past and stress the majority of their mortgages were issued in roubles.

Alfa Bank, where Kirill and Zlata got their mortgage, did not respond to requests for comment for this article.

NO SILVER BULLET

The rouble was at 25 to the dollar when Kirill and Zlata took out their 10-year dollar mortgage at an annual interest rate of around 10 percent.

In January this year it hit a new all-time low of over 85 to the U.S. currency, prompting protests by Russia’s dollar debtors to flare up as many said their homes risked being repossessed.

Estimates as to how many foreign-currency mortgage holders there are in Russia vary, but compared with the scale of the problem in other countries their number seems relatively slight.

The central bank said it did not have an up-to-date figure for the number of foreign-currency mortgages in Russia, while bankers have said there are around 20,000. A protest group that wrote an open letter to Putin said over 70,000 Russian families have foreign-currency mortgages.

In Poland there were more than half a million foreign-currency mortgage holders last year in a country with a population more than three times smaller than Russia.

Kirill and Zlata say they want Alfa Bank to compromise by using a fixed exchange rate somewhere between the current rate and the rate when they signed the contract for their remaining mortgage repayments.

They say many banks refused to give them sufficiently large mortgages in roubles in 2007 and that they were lured in by the lower interest rate on a dollar mortgage.

For now it looks like the government is not going to intervene.

Putin’s spokesman said last week it had not yet been possible to find any “ready-made solutions” to the problems faced by those with dollar mortgages. (Reporting by Alexander Winning; Editing by Jason Bush and Janet McBride)

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