Changes in mortgage loans since 2016: the additional costs for those without a 20% down payment.

In 2016 there will be some changes introduced, which result from the recommendations of the Polish Financial Supervision Authority, regulating, among others, the requirement of the maximum level of funding for loans secured by mortgage. According to these regulations, in 2016, banks will be able to grant a credit in the amount of not more than 85% of the collateral value, wheras currently it is 90%.

It is worth recalling that, in accordance with Recommendation S (introduced in June 2013), the changes were aimed at financing up to 80% LTV (LTV – loan-to-value ratio), but a reduction to this level has been achieved gradually (each year it will be reduced by 5% to reach the level  of 80% LTV from January 2017 year).  It needs to be stressed that funding is possible up to 90% LTV if the part from 80% to 90% LTV is insured or protected in the form of frozen funds on a bank account or in the form of a pledge on Treasury Debt Securities or National Bank Debt Securities.

Today, we can observe that numerous banks have already applied a requirement of the maximum funding level of 80% LTV to their internal regulations. Other banks need an additional insurance due to the increased risk (ie. low down payment insurance), in case of accepting funding up to 90% LTV. The key question is: does it meet the requirements of Recommendation S? Only a few banks set their procedures regarding Recommendation S till the end of November, however, we may assume, judging by the available information, that they intend to proceed in this manner.

In practical terms, therefore, the introduction of the recommendations may not be noticeable for customers. What is more – no bank financing up to 90% LTV has announced a reduction of the maximum available loan amount to 85% LTV.

At present, banks that have implemented the insurance due to the higher risk, (insurance calculated on the basis of the missing down payment), charge the customer a fee for insurance in the form of raised interest rates or periodic charges. Regardless of the form of this fee, it increases the cost of the mortgage. It should be also emphasized that the loan margin  (for mortgages over 80% LTV ) is higher throughout the whole crediting period in most banks.

It might be assumed, for the time being,  that there will be still possible to finance up to 90% value of the property in 2016, but it will be related to higher cost of credit due to the applied insurance, (except in cases where the client will provide the security measures financed in the amount of own missing contribution).