The new Recommendation S will force many Poles to buy real estate this year or to save on their own contribution. We will achieve the required level of 5% of our own contribution if we postpone the equivalent of the monthly installment we will have to pay after taking the loan for a year.
The ideal situation would be if people wanting to buy real estate on credit
And who do not have the required amount for own contribution by the end of this year, bought a house or apartment. Then they will not have to delay for a year, two or even three decisions to buy the property until they collect the required amount. Pursuant to Recommendation S adopted by the Polish Financial Supervision Authority, as of January 2014, the loan amount will not be able to exceed 95% of the value of the property being the collateral for this loan. This means that every customer will have to contribute a minimum of 5% of their own funds or, as an additional collateral for the loan, also give another property. People who will not be able to meet these requirements must accelerate their decisions and take a loan and buy the property this year, before the new recommendation is introduced by the banks.
Postpone your installment today
Currently, obtaining a loan for 100% of the property value is still possible at a dozen or so banks. If we take a higher loan, of course, we must also have higher creditworthiness, but if our income is high enough, we can receive such a loan. Problems with obtaining a loan in the absence of own contribution may be found in several banks by self-employed persons. Such a client must contribute at least 10% of own funds without the possibility of additional insurance of the missing amount. However, despite these increased requirements, a person without an own contribution should not have problems obtaining financing.
You can’t take credit today – start saving
People who, for various reasons, are unable or unwilling to take out a loan today and planned this step only after some time, should start saving for their own contribution, otherwise they may forget to buy an apartment for a loan. So how much does a person who wants to get into debt in 12 months have to put down each month, and how much if the loan is taken in 24 months, when 10% savings for housing will be required? It turns out that it is best to postpone the amount of the installment, which we will pay in the future on credit.
The above calculations relate to the optimal situation from the customer’s point of view, i.e. the situation when we can actually postpone such monthly amounts today. In practice, many people today pay rent for renting an apartment or installments for other loans. However, it is worth thinking about optimizing your expenses and, if possible, regularly save the required amounts. If our financial situation does not allow it, another option may also be to save slightly lower amounts, but with the extension of the saving period for own contribution. Certainly, despite the fact that the Recommendation S will only apply from 2014, it is worth thinking about your own contribution today.
Additionally, save on additional fees
In the context of having adequate own funds, it is also worth paying attention to other additional fees. Until now, banks have often added commission or fees related to the loan to the loan amount. After the new regulations come into force, it may be a bit more difficult. Although it will formally be possible, but after adding all the fees, the loan amount will not be able to exceed the set limit (95% in 2014, 90% in 2015, etc.). Therefore, if we decide to credit the fees, we will have to increase the amount of own funds allocated for the purchase. In addition, it is worth remembering that when taking out a loan we will often have to have more than the required 5% or 10%, because the so-called approximately credit fees will have to be financed by the borrower.
Compulsory insurance of own contribution
Recommendation S obliges banks to ensure that the loan amount does not exceed 85% of the property value in 2016, and 80% in 2017. However, the PFSA gives the possibility to take out a 90% loan, provided that the difference between the own contribution required and owned by the client is insured. For the price of the insurance premium it will be possible to take out a loan with an own contribution of 10%. When purchasing real estate with a value of USD 300,000 and having only 30,000 own funds, the insurance cost of 5% is about USD 500 and is a premium covering a period of three to five years. It is also worth noting that we already pay such insurance in most banks granting loans for 100 percent of the property value. Virtually every bank sets an acceptable LTV ceiling of 80% and any loan above this ceiling is associated with the need to purchase insurance for a missing own contribution. So banks have been using such insurance for years, it was introduced many years ago.