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Mortgage

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The Polish government has introduced a law that will make purchase of the first apartment or house easier. So if you don’t own any residential property yet, this could be an opportunity for you.
The program provides an interest rate subsidy in the first 10 years of payments. The law came into effect on 01-07-2023. In this article I outline the most important elements of the program.

Recent update: 13-09-2023

First time buyers only

You can’t own another residential property to be eligible for the government subsidy. This also applies to properties you owned and sold in the past. It must be the first residential estate in your life. You also don’t qualify if you are already paying off a mortgage (even if you’re not a property owner) or you had a mortgage in the past.

Limits (age & amount & down payment)

Maximum amount of a loan is 500k for a single and 600k for a couple (married couple or a not married couple with at least one child).

Maximum down payment of 200k limits purchase price to 700k and 800k respectively.

The applicant must be under 45 years of age at the time of applying for the loan. For couples, it is enough that one person meets the maximum age requirement (so the other person can be older).

Is it really 2% loan? How the subsidie works

First of all – it has to be at least 15 years loan with decreasing instalment payment schedule.

Decreasing instalment works in this way:

Let’s say it’s 25 years 500k loan. 25 years of repayment means 300 months. Bank divides given amount of a loan on 300.

500k PLN / 300 = 1666 PLN – this is monthly principle payment

We can assume that interest rate is 7% (more or less is what you get today*)

*with 20% down payment, with less than 20% down payment the rate is usually higher by around 1%

Now we can calculate monthly interest payment.

500k x 7% = 35k

35k / 12 = 2916 PLN – this is monthly interest payment

Overall monthly payment: 1666 PLN + 2916 PLN = 4582 PLN

Why it is called decreasing? Because each month you pay less interest which means overall monthly payment is lower every month.

Now we can talk about the subsidy.

BGK (state-owned bank) will publish and use a benchmark rate which is an average of 5-year fixed mortgage rates offered by a banks which joined the program. BGK has already published this rate and it’s at 7,14%. It will be updated every three months.

This initial subsidy rate is calculated in the following way: 7,14 – 2 = 5,14

It means that your around 7% bank rate will be lowered by 5,14%. BGK will transfer subsidy directly to the bank so you’ll see the 2% rate.

Based on 2% rate your monthly interest payment starts from 833 PLN (500k x 2% = 10k, 10k / 12 = 833). So including subsidy your monthly payment is at 1666 PLN + 833 PLN = 2499 PLN. As you can see the monthly subsidy is over 2k PLN.

After 10 years subsidy ends and bank will offer you a new rate. It will be a market rate – either a fixed or a variable one. If offered rate won’t be attractive comparing to other banks you can transfer your loan to another bank (remortgage).

According to „2%-loan act” when subsidy ends after 10 years bank have to allow you to extend remaining repayment period by additional 5 years if needed.

If you’d like to know detailed offer of particular banks please email me at: kamil@polishmortgage.pl

No need to provide a down payment (own contribution)

In this program, you don’t need to provide a down payment. You can finance 100% of the property purchase price with a loan. The missing down payment (normally 20%) is guaranteed by BGK. You only pay a guarantee fee of 1% of the “missing down payment”.

For example: you buy an apartment for 500k. In a “standard loan” you would have to pay 100k down payment (20%), and 400k would be financed by a mortgage. In the 2% loan, you will finance the entire amount with a loan of 500k. You will only pay a 1k PLN fee for the missing down payment (100k x 1% = 1000 PLN)

There is one limitation – maximum amount of BGK guarantee is 100k. Let’s say you apply as a couple and the purchase price is 600k. 20% of 600k is 120k but max amount of quarantee is 100k – in this case 580k you can cover by a loan but the remaining 20k you have to pay from your savings as a down payment.

Remember that you will have to cover transaction costs out of your own pocket. If you want to know what additional costs you can expect, check out this article: Buying a flat on a mortgage – let’s calculate initial expenses

Mind the restrictions on the use of the property!

These are the cases when you lose entitlement to the subsidies:

– sold or rent the property within the first 10 years

– buy another property for residential purposes

– you don’t move in within 24 months

– changed the way of using the property (e.g. transform it to non-residential property)

It all means that if the bank will find out about any of mentioned above subsidy stops and your loan is transform to a ‘standard’ one with a higher interest.

In two cases you have to pay back all subsidies you already received:

– if you pay out the loan in first 3 years (pay out means you close it completely)

– if you provided misleading information in your mortgage application reported by bank to authorities and you were sentenced guilty

Early prepayment

There are some limitations in early prepayment but only in first 3 years – you can’t prepay more than 20% of the loan. After 3 years you’re free to close it of prepay it by any amount.

If you want to find out more about how early prepayment works you can check out this post: Can I pay off my mortgage earlier? How it works in Polish banks

Is it worth it?

If the above listed restrictions are not a problem to you, then it is definitely worth an effort. Currently, mortgage rates in Polish banks are at around 7%. Getting a loan with a fixed rate of 2% is a very attractive alternative.

What about foreigners?

The program will be also available to people who don’t have Polish citizenship. The only requirement is that the foreigner lives in Poland (it is the center of their vital interests) and earns enough to be creditworthy.

Program’s effect on Poland’s real estate market

The „2% program” has started in 01-07-2023 and banks which joined it received so far almost 50k applications on the overall amount at around 3 billion PLN. It created a huge demand and apartment prices in some areas already increased by 10%. This demand boost overlap with lower supply caused by new developments shortage. After 2022 interest rates sharp increase mortgage market collapsed (over 50% fall in volume) and many developers decided to hold a new investments. Considering that construction cycle in development project takes over 2 years there is no chance for a quick adjustment on a supply side. That’s why there is widespread expectation for a further price increase.

Program limits & timeline

Program is scheduled to the 2027. Although anyone who apply this year will get it (based on government declarations) in following years government will set up the limits in yearly budget. Considering that so many people already applied it is possible that in following years this yearly budget for a subsidy will end somewhere in the middle of a year.

For more details or to find out if you qualify for the program, email me at kamil@polishmortgage.pl