Loan for a Start – an exceptional programme

For several months now, there has been public discussion about the government programme called “Loan for a Start”. I intentionally avoided using the adjective “new” because it’s merely a more mathematically complex version of the previous program, “Safe Loan 2%”. Similar to all the previous programmes aimed at financially supporting selected borrowers – starting with the “Family on Its Own” programme from 2007-2013, followed by the “Flat for Youth” programme from 2014-2018, and ending with the “Safe Loan 2%” – the “Loan for a Start” programme also provides state subsidies for purchasing a first housing. Successive governments imitate their predecessors, attempting to create the illusion of solving the housing problem in our country by straightforwardly distributing money to those supposedly most in need. However, I am certain that those who are truly in need are not waiting for zero-interest loans. For instance, with an average loan value of PLN 418 000 in the “Safe Loan 2%” programme, the monthly loan instalment for a 25-year repayment period amounts to nearly PLN 1 400. Instead, they likely need rental housing, where the rent payment doesn’t exceed half of that amount. The “Flat Plus” program, which supports the construction of rental apartments, could have been a response to these needs. Unfortunately, it was tainted by the populist possibility of purchasing rental apartments after 20 years of tenancy. Moreover, the assumption that the government would be the executor of this programme led to its failure.

Therefore, I was pleased to read the statement from the new, though presently former Deputy Minister of Development and Technology, Krzysztof Kukucki (former because he was elected as the mayor of Włocławek in the recent local elections). He asserted that if someone wants to buy an apartment and can afford it, it is ok do so. However, if someone doesn’t want to buy or cannot afford to buy, but still needs a place to live, it is the role of the state and local government to ensure that this need is met. I would only add to the list of rental housing providers the private “apartment owners” and institutional PRS rental companies.

After the formation of the new government, I hoped for an opportunity to develop long-term programmes that would address Poland’s housing problem. As a banking sector, we have been recommending proven solutions that have been positively verified in other countries for many years. We presented these solutions to Minister Waldemar Buda even before last year. However, the PiS government opted for an election-oriented product called “Safe Loan 2%”. It’s hard to view this product any other way. The previous government’s “Safe Loan 2%” programme did not help PiS win the elections, so I am even more surprised that the new government, despite the total criticism of the effects of the “Safe Loan 2%” (especially the dynamic increase in transaction housing prices caused by it, both on the primary and secondary markets), decided to replicate it with some modifications.

Although the Ministry of Development and Technology has initiated a consultation process, it only involved individual meetings with specific groups rather than discussing potential solutions. The purpose was to evaluate the existing programme’s parameters rather than its validity. Could such a programme, which aims to attract additional housing recipients, be disliked by developers? Certainly, it could not. Could it also be unpopular with banks, as it expands the pool of potential borrowers and increases the number of loans that can be granted, especially in the context of persistently high market interest rates? Absolutely not. Even with the complexity of numerous conditions, limits and exceptions that will require tailor-made loan applications, most borrowers will likely turn to commercial loans to finance their desired property. Furthermore, the “Loan for a Start” programme does not restrict the downpayment amount or the maximum loan amount. However, it’s essential to recognize that the absence of these restrictions might encourage moral hazard. Moreover, a logically thinking potential borrower, after observing the situation with Swiss franc loans and credit holidays, will inevitably conclude that this is ultimately a “state-subsidized” loan, and the government will surely address any potential issues. Populism is gaining ground in Poland, as evidenced by the proposal to extend credit holidays even to borrowers with fixed-rate loans (!).

I refrain from evaluating whether this trend is a consequence or a cause of the last eight years of the Law and Justice party’s rule, which is unequivocally classified as a populist party in Europe. However, support for populists in our country is among the highest in Europe. The 2023 election campaign in Poland and the first months of the new coalition government indicate a “contagion” of populist demands from PiS. Therefore, every opportunity should be used to discourage populist solutions that harm the economy and democracy.

Why did I call the “Loan for a Start” programme exceptional? Firstly, out of defiance. Secondly, due to the numerous exceptions from the incredibly rich list of parameters defining eligibility for government subsidies. Regardless of the fact that potential beneficiaries are divided into eight categories, each with a maximum allowable income limit for accessing the loan, a maximum loan amount granted under preferential conditions, and the interest rate for this preferential loan, the program exceptionally allows exceeding the income limit by deducting the corresponding subsidy amount. This deduction varies depending on the borrower’s family size.

As a fundamental requirement, similar to all previous programmes, beneficiaries must not own any property. However, here we encounter another exception. Families with at least three children are exempt from this requirement; they can benefit from preferential loans to purchase a different property. But there’s an additional condition: to retain the loan subsidies, they must sell their current property within two years.

Another exception allows raising the loan limits (the amounts covered by subsidies) if the beneficiary purchases property in a locality with significantly higher prices. Both income limits and maximum amounts for preferential loans are increased by 10% or 20%, depending on the cost of reproducing a square meter of housing.

There is no downpayment limit or limit on the amount we want to allocate for property purchase. Furthermore, if we don’t have a 20% downpayment, BGK (Bank Gospodarstwa Krajowego) can provide a guarantee for up to PLN 100 000 to cover all or part of the downpayment when purchasing a property worth PLN 1 million. Providing this guarantee would involve a one-time fee of 1% of the guarantee amount.

The program also sets a limit on the usable area of the purchased property, but this limit exceptionally does not apply to building a house. Initially, the limit is 50 square meters for singles. Each additional household member increases this limit by 25 square meters. However, here’s another exception: exceeding the limit does not disqualify the beneficiary, but it reduces the subsidy by PLN 50 per one square meter of excess, regardless of the number of family members.

Unlike the “Safe Loan 2%” programme, there is no age limit for beneficiaries in this programme, except for singles. For them, there is an “exceptional” age limit of 35 years.

The interest rate for preferential housing loans will depend on the number of children. The base rate is 1.5%. It will be applied to households with no children. Each child will reduce this preferential interest rate by 0.5 percentage point, down to 0% for large families.

Beneficiaries of this preferential interest rate will enjoy it for a maximum of 10 years, during which budget subsidies aim to reduce the cost of debt servicing. In practice, borrowers will initially agree with the bank on 5 years of preferential repayment. Halfway through the subsidy period, a new agreement will cover the next 5 years. After the subsidies end, borrowers will transition to market-based repayment terms. However, the preferential loan is structured (using decreasing instalment payments) so that after 10 years, borrowers will repay a significantly smaller debt than on the day they took out the loan.

Skutkiem tych rozmaitych limitów i ograniczeń może być rozproszenie grupy potencjalnych beneficjentów. Z kredytu „BK2%” w ponad 57% skorzystały gospodarstwa jednoosobowe, czyli single, co skutkowało tak dynamicznym wzrostem cen kawalerek. „Kredyt na Start” będzie atrakcyjny przede wszystkim dla wielodzietnych rodzin, kupujących mieszkania tam, gdzie są one relatywnie tanie, co przy ewentualnie dodatkowo posiadanych przez nie środkach własnych i sięgnięciu po uzupełniający kredyt komercyjny pozwoli rzeczywiście zrealizować ich marzenia i potrzeby mieszkaniowe. Dużo mniej atrakcyjny będzie dla singli.

The various limits and restrictions may lead to a dispersed group of potential beneficiaries. In the “Safe Loan2%” programme, over 57% of beneficiaries were single-person households, resulting in a significant increase in studio apartment prices. The “Loan for Start” programme will be particularly attractive for large families buying homes in areas where prices are relatively low. With additional personal resources and supplementary commercial loans, these families can truly realize their housing dreams and needs. At the same time, the programme will be less appealing for singles. Notably, the programme now allows couples in informal relationships to apply for a loan.

It’s unfortunate that the authors did not consider additional support for families raising children with disabilities in this pro-family programme. Such families should also receive additional preferences. A small adjustment would go a long way. I would wholeheartedly support such an idea and did not criticize populist solutions.

Another oversight in the programme is the complete omission of environmental protection aspects, such as additional preferences for properties meeting specific thermos-energetic parameters.

This programme replicates most of the flaws of the “Safe Loan 2%” programme. The introduced income limits are merely a fig leaf. Banks that participated in the “Safe Loan2%” programme verified these limits, and the result was that over 80% of “Safe Loan 2%” beneficiaries would also qualify for the loan under the “Loan for a Start” programme.

Since this program is not as attractive as “Safe Loan 2%”, interest in it may be lower. The announcement that it will last at least until 2027 and that a new application round will be launched every quarter should prevent an accumulation of applications, both at the programme’s start and at the end of each quarter. Moreover, by the end of 2023, many potential buyers who met the “Safe Loan 2%” programme requirements, have already submitted applications for preferential loans under the “Safe Loan 2%” programme. It’s worth noting that in the first month of the “Safe Loan 2%” programme’s operation (July 2023), banks received over 18 000 applications. However, the programme’s authors anticipate processing 35 000 applications by the end of 2024.

All of this suggests that the projected impact of the “loan for a Start” programme on the housing market will be significantly milder than that of “Safe Loan 2%”. Nevertheless, regardless of the fate of this programme, I still hope for discussions about systemic solutions that extend beyond the duration of a single government term.

Jacek Furga, Ph.D.
Head of AMRON Centre