MOSCOW // In 2005, Olga Kulagina was a part of the vanguard of Russians taking out mortgages. Back then, it was a novel form of borrowing that few had tapped and even fewer understood. She and her husband signed up for an adjustable rate mortgage at a respectable western bank with an interest rate of 11.6 per cent. Two weeks ago, she received a letter from her bank, DeltaCredit, saying her rate had gone up to 28 per cent. "I burst into tears when I opened the letter," Ms Kulagina said. "At these new rates, our payments are equal to our monthly income." Ms Kulagina, 34, is now worried she may become one of a growing number of Russian homeowners who are missing payments on their mortgages. According to a recent Central Bank report, the number of overdue payments increased by 6.2 times in the first nine months of this year. The Central Bank announced that the volume of overdue mortgage payments increased to five billion roubles (Dh639 million) as of Sept 30, or 0.5 per cent of all outstanding mortgages. Experts believe this trend will continue in the fourth quarter of the year as the extent of the world financial crisis affecting Russia becomes clearer. "Nonperforming loans are increasing rather quickly," said Olga Veselova, a financial analyst at Troika Dialog. Pressure on mortgage holders is increasing even as Russia's economic outlook worsens. Many find themselves facing significantly higher interest rates than they initially signed on for. In Ms Kulagina's case, she had a variable rate mortgage pinned to the MosPrime rate, which has soared in recent months. Her payments have nearly doubled, from 46,000 roubles a month to 87,000. Consumers who took out their loans in foreign currencies, about 11 per cent of all loans, face similar problems as the rouble devalues. The rouble has lost 17 per cent against the US dollar since the summer, when oil prices peaked. The only silver lining is that mortgages remain relatively uncommon in Russia. Despite dramatic growth in recent years, Russia's mortgage market is less than three per cent of GDP, compared to 10 per cent in Poland, 52 per cent in Germany and 65 per cent in the United States. Mortgages are still not widely spread among the middle class. That is no consolation for Ms Kulagina, who works a sales director for a retail firm. According to her mortgage agreement, the bank can demand full repayment of the loan if she is just two weeks late with a payment. In another two weeks, the bank has the right to seize her apartment. "I want to pay my mortgage, but the bank needs to meet me halfway," Ms Kulagina said. Sergei Gorbunov, a spokesman for DeltaCredit, said the bank is open to renegotiate terms with its clients. He said the bank, which is 100 per cent owned by Societe Generale, "has been switching many customers to fixed rates for some time now". He added that in some cases the bank may determine that its interests are better served with foreclosure. Given the complex laws regulating repossession and the large role state funding plays in the banking sector, many banks are looking to renegotiate with borrowers to prevent defaults. "Banks are quite open to using state financing to renegotiate contracts," Ms Veselova said. "The real question is whether state financing will be available to all banks, or only to state-owned ones." As the number of defaults grows, it is unclear what concrete steps the state will take to prevent people from losing their homes. This month, Alexei Kudrin, the finance minister, said the government plans to offer extensions for mortgage repayments in certain cases. Vladimir Putin, the prime minister, said banks should restructure clients' mortgage payments next year. To date, the state's efforts have focused on propping up the banking system rather than aiding consumers. In early December, the government offered banks 200 billion roubles to support the mortgage market. However, funds from this bailout were diverted elsewhere and have had little influence on the mortgage market. It has reached a standstill, with Ms Veselova estimating that only 10 to 20 banks in Russia are currently offering mortgages, a 20-fold drop-off. "The option is still there," she said. "But banks have massively tightened their requirements." Down payments have grown from 10 per cent to 15 per cent of the property's value to 30 per cent to 40 per cent and many banks are only offering dollar loans. At least one bank, the state-owned VTB-24, is offering a programme to convert dollar mortgages to a rouble-based mortgage. However, the customer must pay a 24,000 rouble commission, reassess the value of the property and purchase insurance. The future of Russia's mortgage market is murky. Much depends on the broader economy's recovery. "The mortgage market is interesting in the long-term, with huge potential," Ms Veselova said. "But when will long-term money become available? For now, banks are giving priority to corporate lending and liquid assets." Ms Kulagina is more concerned with the short-term. "DeltaCredit's website has a list of apartments for sale," she said. "I'm afraid that my apartment will end up as one of them."