A new way for Russia to cement its hold on Ukraine: dirt-cheap mortgages

• A major Russian bank launched a 2% mortgage rate that is available only in occupied Ukraine.
• The rate is rock-bottom, and fixed for 30 years. Russia's main interest rate is 21%.
• The incentive is in keeping with other Russian attempts to cement its hold on occupied Ukraine.

Russia is debuting a rock-bottom mortgage rate with a catch: it's only available if you live in a warzone.

In a press release on Wednesday, Russia's VTB Bank announced a mortgage with a rate of 2%, fixed for as long as 30 years.

The rate applies only to the regions of Luhansk and Donetsk, which are mostly under Russian occupation.

The 2% mortgage is an economic anomaly — far cheaper than other borrowing.

The main interest rate there is 21%, with conventional mortgages around that mark as well. Inflation runs about 8%.

VTB said the borrowers could take loans of up to 6 million rubles, or roughly $61,000. Average salaries in Russia are around $10,000 a year.

VTB is mostly owned by the Russian state, and while it didn't give a reason for the low rate, it aligns with other Russian efforts to cement its hold on occupied land. It did not respond to a request for comment.

Russia claimed the two territories as its own in a September 2022 annexation, even as some parts of them remained in Ukraine's hands or on the front lines.

The US, NATO, and Ukraine's allies have long called on Russia to withdraw from the territory and return it to Ukraine, which continues to fight for it.

That return gets harder if more and more Russians move there.

Agathe Demarais, a senior policy fellow on geoeconomics at the European Council on Foreign Relations, saw the low rate as a clear incentive for Russians in the area to stay there.

"The aim is to consolidate Russia's long-term presence — through 30-year loans, which is highly unusual in Russia — in the occupied Ukrainian regions," she told Business Insider.

Other moves by Russian to tighten its grip include implementing a Russian curriculum in schools, including a pro-Russian view of history. It also made the ruble the official currency, supplanting the Ukrainian hryvnia.

Ukraine says Russia has offered financial incentives, up to 5 million rubles or $51,000, to Russians who move there.

A topsy-turvy housing market

Russia has subsidized mortgages by offering attractive rates before, though to a lesser extent.

It did so near the beginning of the COVID-19 pandemic and then to counter the sanctions piled on it by Western nations after the 2022 invasion, capping them at 8%.

However, house prices soared in response and Russia pulled the broad subsidy in July.

The new rate for the occupied regions offers Russians far better terms than even the earlier subsidy — but with the significant catch of living close to the war.

Fierce fighting

Russian troops are trying to capture the remainder of Luhansk and Donetsk, which Ukraine still holds.

Those territories had long been relatively static, though host to fierce fighting.

But in recent days, reports accumulated that Russia was taking more ground there. Reuters reported that the advance was its fastest in a year.