From January 2014, up to 20 percent of customers may have a problem with taking out a mortgage because of the lack of the required minimum 10% down payment. This number may increase up to 25 percent from 2015, when it is planned to introduce 20% own contribution.
According to the draft of the new Recommendation S of the Polish Financial Supervision Authority, from the beginning of 2014, every person purchasing real estate and taking out a mortgage will have to document at least 10 percent of their own contribution. For example, if we buy a flat worth $ 250 thousand, then it will be necessary to have a minimum of $ 25 thousand. In practice, the requirement may be even greater. In a situation where the loan amount cannot exceed 90 percent of the property value, it will be impossible to credit around credit fees, such as commission or insurance. Thus, the borrower’s own funds will usually have to be higher than the assumed 10 percent in order to cover these additional fees. This can be an insurmountable obstacle for many potential buyers. Based on historical data, it can be assumed that about 20 percent of customers may have a problem obtaining a mortgage due to the lack of a 10 percent own contribution.
Detailed structure of the LTV ratio for newly granted loans with LTV> 80%.
Also Research on «Demand and Preferences of Buyers in 2012» carried out by Edward Cron on behalf of the company New Address also confirms this thesis. They show that the introduction of a mandatory own contribution of 20%. from 2015, it would result in a hypothetical shrinkage of the market by as much as 25 percent, assuming that people in debt of 80 or more percent of the property value would not be able to accumulate funds for the required own contribution.
The share of credit in the cost of purchasing real estate among people who plan to buy a residential property with a loan over the next 3 years
Katarina Teel, president of the board, Nowy Adres SA: – Introduction by the amended recommendation S 10% – and ultimately 20% – obligatory own contribution is probably an idea too drastic. Of course, I agree with the KNF opinion that banks should not grant 100% loans. the value of housing, but for young people who are the most numerous group buying the assembly at current housing prices of 25-40 thousand. USD own contribution can be a big problem. It is also possible that borrowers will take much higher interest-bearing «cash» consumer loans to get money for their own contribution, which would further aggravate their financial position. The Polish Bank Association suggests that instead of 10 percent in 2014 and 20 percent from 2015 it was 5 percent from 2014 and 5% in addition, each subsequent year, up to 20 percent in 2017, this slightly more liberal proposal would guarantee a mild «transition period» in which borrowers could adapt to the new conditions.
Loans for 100% of the property value are still available
In recent months, some institutions have withdrawn such products from their offer, but nevertheless obtaining financing for 100 percent of the property value is not a problem today. Currently, 12 institutions offer loans without own contribution, with virtually no additional requirements compared to loans with own contribution. It is connected with the necessity to take out insurance for the missing contribution and a higher margin, but if only we have a sufficiently high income, we can obtain a loan for 100 percent of the contribution. The creditworthiness is calculated on the same terms as for a loan, e.g. 50 percent of the value, but the lack of own contribution usually means a margin higher by about 0.3-0.4 pp. For a loan of 300 thousand dollars taken for 30 years, this means higher monthly costs about $ 50. An additional cost is the aforementioned insurance of missing own contribution. It is a fee payable monthly or as a premium paid in 3 or 5 year cycles.
Own contribution to the deposit
However, it is worth noting that the restrictions resulting from Recommendation S do not have to affect the entire group of borrowers. Some people who were in debt for 100 percent of the property value chose this form not because of the lack of own funds, but because of other circumstances. Many customers took out a loan without involving their own funds, wanting to invest them or just putting them down in a bank deposit or in another secure investment, thus creating collateral in the event of unforeseen expenses or problems with loan repayment. This means that such customers, if they want to buy a flat in 2014, will have their own funds and will be able to take a bank loan.
Apartment for the young to the rescue
The government’s Flat for Youth program, which is to come into force in January 2014, can also help some borrowers. According to the assumptions, program beneficiaries will receive a one-time additional payment of at least 10 percent of the property value at the time of granting the loan. This will mean that the loan taken will be lower by this amount and will meet the conditions resulting from Recommendations.