Housing without down-payment

On November 15, 2021, the President of the Republic of Poland signed the Guaranteed Housing Loan Act, which is a part of the “Housing without down-payment” programme that comes into force in 2022. New regulations are designed to make home financing more accessible to people who are creditworthy but have not built up savings of 10-20% of the value of the purchased property. The Act introduces a number of conditions that must be met in order to benefit from the programme.

In 2013, the Polish Financial Supervision Authority, with the amendment of Recommendation S, obliged banks to require borrowers to gather at least the minimum down-payment, and according to Recommendation 15.7, the minimum level of the recommended own contribution increased year by year: in 2014 it was 5%, in 2015 – 10%, in 2016 – 15%, and from 2017 – 20%. The above-mentioned provisions of Recommendation S tightening the requirements for granting mortgage loans by banks, established own contribution as a mandatory requirement to be met by the customer when applying for a loan, leaving, however, the possibility for banks to grant loans with a higher (max. 90%) LtV ratio provided that the part of the loan exceeding the level of 80% LtV have to be insured. Nevertheless, for many potential borrowers, raising funds in this amount is still a barrier unable to overcome. “Housing without down-payment” is intended to facilitate the purchase of the flat without capital.

The government emphasizes that this is not a social programme, and the new regulations are targeted at people with stable incomes. The programme covers the purchase of an apartment or single-family house on both the primary and secondary market, as well as the purchase of land property for construction and finishing of a detached house. New act introduces price limits of 1 sqm of property that can be credited. Depending on the location, only some apartments will qualify for the programme. The objective is to prevent leading to an even greater increase in prices on the real estate market after introducing the programme.

The guaranteed housing loan will be available to persons or households that do not have ownership title to a dwelling or single-family house, or a cooperative ownership title to any property, and have not transferred such title by donation during the five years preceding the application for the loan. Families with children are an exception: in case of two children it is possible to own an apartment or a detached house of up to 50 sqm, in case of three children the usable floor area of the property may not exceed 75 sqm, for four children it may not exceed 90 sqm, while in case of five or more children there are no restrictions as to the usable floor area. Furthermore, the programme is addressed to persons who hold Polish citizenship or are in a relationship with a person holding one. What is important, no age limits have been introduced, as applied to previous housing programmes, and there is no exclusion of past property owners from the programme.

Under the programme, the borrower may apply for Bank Gospodarstwa Krajowego (BGK) to guarantee a part of the mortgage loan amount that without this certification should be paid by the borrower as down-payment. The amount will not be financed by the State, but will be included in the loan amount. The borrower benefiting from the programme, when repaying the liability to the bank, will first pay off the amount constituting the down-payment covered by the guarantee. The main purpose of the programme is to grant a loan for the entire amount needed to purchase the property. If the borrower is unable to repay the loan, BGK will repay the loan only up to the amount of the guarantee of the down-payment in the bank that granted the loan. Pursuant to the provisions of the Act on Guarantees Issued by the State Treasury and Certain Legal Persons, upon payment, BGK enters into the rights of the guarantee beneficiary and may pursue claims related to recovery of the amount paid from the borrower.

The amount covered by the BGK guarantee may range from 10% to 20% of the real estate value, but cannot be higher than PLN 100 000. BGK will charge a one-off commission fee of 1% of the amount covered by the guarantee. Minimum lending period of the guaranteed housing loan should be at least 15 years, and the loan itself can only be granted in Polish currency. “Housing without down-payment” does not state the limit on the usable floor area of the property, for the purchase of which the loan is requested. Guaranteed housing loans will be granted on commercial terms by banks that will enter into an agreement with BGK.

As provided for Act, borrowers who receive assistance under the programme may additionally receive a subsidy to guaranteed housing loan. The condition for obtaining the so-called ‘family repayment’ is enlargement of the family during the loan agreement period. In case of a second child, the State will provide loan subsidy of PLN 20 000, while in case of a third and subsequent child – PLN 60 000.

Despite the current down-payment requirement, interest in mortgage loans has been increasing for years. This was significantly influenced by the National Bank of Poland’s Monetary Policy Council that maintained interest rates at record low levels since March 2015, subsequently reduced during the COVID-19 pandemic. According to the data presented by Credit Information Bureau, a slowdown of the upward trend on the market was observed only in 2020, when 219 300 mortgage loans amounting to PLN 63.889 billion were granted. In 2021, a record number of 271.8 loans amounting to PLN 88.737 billion were granted.

CHART 1. VALUE AND NUMBER OF NEW HOUSING LOANS ANNUALLY IN 2016-2021 ACCORDING TO CREDIT INFORMATION BUREAU

source: self-study based on the data of Credit Information Bureau

Since October 2021, the National Bank of Poland has already raised interest rates five times. The reference rate, which is the National Bank of Poland’s main rate, is currently 2.75%, and its lowest level was maintained by the Monetary Policy Council during the pandemic for a year and a half at 0.10% per annum. Further increases are possible in the near future in order to bring down rising inflation. It shall affect interest rates on loans and thus their availability and lower potential creditworthiness of borrowers.

Despite the increasing number of housing loans, access to own housing is still a problem for a large part of Polish citizens. Growing real estate prices and the spectre of rising mortgage loan interest rates may have a dampening effect on demand on the real estate market in the near future. The Guaranteed Housing Loan Act will come into force on May 27, 2022, and the solutions contained therein may be an opportunity to stimulate demand on the real estate market in the coming years.

Marta Polkowska
SARFiN System Data Administrator
Senior Maintenance and Development Specialist