Putin throws lifeline to housing sector with subsidised mortgages extension

MOSCOW (Reuters) - Russian President Vladimir Putin on Thursday extended a preferential mortgage scheme by 18 months, providing a lifeline to a struggling sector of the economy and pledging low rates for residents of Ukrainian regions annexed by Moscow in October.

Analysts had warned that the end of state subsidies for mortgages would spell trouble for the property sector after Putin's September partial mobilisation order sparked a labour shortage and a collapse in demand, creating another economic shock for lenders still smarting from perennially high rates this year.

"We will be winding down the preferential mortgage mechanisms, but we will do this smoothly," Putin said at a televised meeting with officials. "We will extend preferential mortgages across the whole of Russia until July 1, 2024."

The preferential rate will rise to 8% from 7%, Putin said, adding that families with at least two children should have access to mortgages at 6%.

The average annual mortgage rate in the third quarter of this year was 10.49%, according to a Banki.ru index.

Shares of Russian developers turned positive on the news, outperforming the wider Russian stock index, which was falling, in a much-needed boost for the sector.

"The slowdown began in October, when some solvent borrowers were mobilised, or left, and banks tightened borrowing requirements," said Evgeny Suvorov, an economist at CentroCreditBank. "Furthermore, demand in the capital is now many times lower than supply."

The Bank of Russia hiked its key interest rate to 20% shortly after Moscow began its "special military operation" in Ukraine. It has cut rates six times since then and is widely expected to hold it at 7.5% on Friday.

"Mortgages will be strained, in October they collapsed because of mobilisation," veteran economist Natalya Zubarevich said this week.

Putin also proposed a preferential 2% rate for new housing for residents of four regions of Ukraine annexed by Russia in October.

Moscow proclaimed the annexation of Ukraine's Donetsk, Luhansk, Kherson and Zaporizhzhia regions - which it calls the "new territories" - shortly after holding so-called referendums that were rejected as bogus and illegal by Kyiv, the West and a majority of countries at the United Nations.

(Reporting by Vladimir Soldatkin, Darya Korsunskaya and Elena Fabrichnaya; Writing by Alexander Marrow; Editing by Tomasz Janowski)