07/08/2023 by Jakub 0 Comments
"Safe Mortgage 2%" - brief analysis.
As we are already a month into the governmental program addressed to first-time property buyers, we gathered enough data to analyze it further.
The program is enjoying a lot of attention - only in July, around 20 thousand customers, including ours, applied for it. To give you perspective - in the previous year, banks granted 126 thousand mortgages. As the demand for standard mortgages is growing alongside - a total of 43,47 thousand households applied for mortgages in July, making it the highest monthly number ever, or since 2008 when BIK (Credit Information Bureau) started collecting such data.
At the same time, the program stands high on the political agenda, which automatically means a lot of misinformation flying around. In the following article, we would like to address some of the points of confusion.
What is the program?
Let's start from the beginning. Please see our post from the 21st of April, explaining the "Safe Mortgage 2%" - you will know the rules, eligibility, etc. Also, while reading you will see that many program-related risks we were pointing at back then finally did not materialize.
You can find the previous post under this link.
What is the actual price of this mortgage? 2 or 5%?
Customers who want to use the program should apply for at least 181 months of the mortgage period, but some decide for longer, for example, 30 years. Those customers receive an informational offer from the bank, on which they can see RRSO, meaning real yearly interest rate, at 4,8%, or another percent much different from the 2% promised via the program. Why?
The reason for that is quite straightforward - in Poland, banks have to show customers the cost of credit for the whole original mortgage period while assuming today's interest rates. So, even though the interest rate of the mortgage via the program is fixed at around 2% for the first ten years, including all costs (or 5+5 years, as the rate will be recalculated after five years for another five years, but still should be around 2% as per regulations), the bank assumes that after ten years customer will be charged today's interest rate with WIBOR close to 7%, making the averaged yearly interest rate closer to 5%.
Such a scenario is unlikely due to two main reasons. First, statistics show that an original mortgage period in Poland is 26 years on average, but the liability gets fully repaid on average within only 13 years. The potential of early repayment is even higher with the "Safe Mortgage 2%". For 500 thousand PLN taken for 30 years, the monthly payment would start at around 2200 PLN and then gradually drop to almost 1900 PLN in the 120th month. So if you would only double your monthly payment each month, you would be left with below a hundred thousand PLN of principal once the ~2% rate ten-year period has ended.
Second of all, even if the customer would not make any extra payments towards the principal in the ten years, there is no basis for the assumption that the interest rate would be at current levels for the whole 20 years coming after the mentioned period, and that would be a condition necessary for the averaged yearly cost of such mortgage to become 4,8%. Of course, as with any financial decision, anyone interested in the program should assess their risk, and determine their ability for early repayment, which makes it even more crucial to be aware of the mechanisms behind the numbers.
To summarize, the price of "Safe Mortgage 2%" is indeed around 2% for the first ten years - the price after depends on how you manage your liability, and the situation on the market.
How easy is it to lose the subsidy?
Yes, you can lose the right to governmental subsidies, but it is not hard to avoid for those who understand the program's rules.
Let's first clarify - even when you stop meeting the criteria to participate in the program, you will not be giving back what the government already paid towards your mortgage, but lose the right for these subsidies forward. The only scenario when someone would have to give back the funds is if they lied about owning the property and joined the program based on false statements - as it is a criminal offense such a person would also risk jail time.
For the rest of the program participants, the situations when they cannot use the funding anymore are when they:
- did not start living in the property bought via "Safe Mortgage 2%" within 24 months after signing the final notarial agreement
- started using the property for commercial purposes
- rented the property out
- sold the property bought via "Safe Mortgage 2%" (when you sell property with a mortgage on it, part of the sales price automatically goes to the bank to cover the mortgage, hence it closes fully)
- bought another property
- allowed a partner, who owns a property, and with whom they were running a household for at least 12 months before using the program, to live in the property bought via "Safe Mortgage 2%"
- overpaid the mortgage with the amount higher than 200 thousand PLN within the first three years (200 thousand is calculated together with the upfront of the mortgage, those who provided 200 thousand PLN upfront, cannot repay the mortgage at all in the first three years)
As per above, while offering significant financial incentives, the program is not for everyone. However, please note that you can refinance "Safe Mortgage 2%" the same as any other mortgage, so if you expect not to meet the criteria at some point, you can preemptively move the mortgage to another bank. Especially given the current interest rate developments, we can expect that within a year or two, the market will offer rates much closer to the program, unlike today, expanding the participants' options.
If the above did not answer your questions about the program, feel welcome to email us at: email@example.com, or join one of our Q&A sessions, which we plan to do after we process the first group of customers who were already waiting for the program (follow our FB page to be notified).
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