During our previous conversation, you promised that you would present the details of your own program EKO KREDYT na ZAKUP MIESZKANIA on the FPG24.PL portal. However, before I ask you to do so, I would like you, as a long-time expert in loans and the real estate market, to assess from your point of view the programs to date that were supposed to be a “cure for all evils”, i.e. to give an impulse for sensible, dynamic development of housing in Poland.
The only – so far – effective action that allowed for the dynamic development of the housing market on a large scale was the launch of Swiss franc loans, which were a triumph in the period 2004–September 2008. It was a really cheap, easily accessible loan for almost everyone. Let’s not talk about the other side of the coin for now, i.e. what happened later, especially after the memorable “Black Thursday” (January 15, 2015), when the Swiss franc exchange rate soared by over 25 percent in one day. The fact is that many districts in large agglomerations, e.g. Warsaw’s Miasteczko Wilanów, were created thanks to the Swiss franc bank action (no holds barred). There was another advantage here, compared to the three government programs known to us from recent history: no one paid anyone anything extra. It was only an agreement between the bank and the borrower.
These three programs are “Family on Your Own”, “Housing for the Young” and “Safe Credit 2%”. None of them brought the expected results. Why?
These were programs aimed at a selected, rather narrow group: young and wealthy Poles. There were also many exclusions, depending on the program, e.g. such an apartment could not be rented, or the borrower could not have previously owned another property. In addition, all of these programs were contrary to Article 32 of the Constitution of the Republic of Poland, which speaks of the prohibition of discrimination: if the borrower was entitled to a generous subsidy from the state, then the majority of society cannot be excluded from obtaining such a benefit. We are talking here primarily about discrimination on the basis of age: for the creators of the program “Rodzina na Swoim” a 36-year-old was already too old to apply for such a loan with a government bonus. The second program “Mieszkanie dla Młodych” indicates discrimination in its very name, after all it is a pure manifestation of ageism! However, no one was bothered by this. Imagine the outcry of left-wing circles if a given political option decided to introduce a campaign called “Mieszkanie dla Heteroseksualnych”.
So what can we expect from another program of this type, pushed by the new government team, namely “Mieszkanie na start”?
This program repeats the mistakes of all previous government programs, only the group of beneficiaries is slightly changed, a different form of government subsidies. From the point of view of economics, especially when Poland has such a huge budget deficit, there is no justification for subsidizing the purchase of apartments for the wealthiest part of our society from budget funds. And these are really generous gifts – under the “Safe Credit 2%” program, a single subsidy can amount to about PLN 170,000.
Now please discuss the assumptions of your ECO LOAN program for the PURCHASE OF AN APARTMENT.
Let’s start from the beginning. In order to kick-start the housing industry with a good mortgage offer, it must be based on three foundations: it must be cheap, easily accessible and non-exclusive. I added a few more elements of my own: simplicity, security and flexibility of repayment. In this way, I created the concept of a mortgage loan called “ECO LOAN for the purchase of an apartment”. In this case, the word ECO does not refer to saving the planet, it is an abbreviation – the full name of the program is Flexible Interest Credit.
It sounds beautiful, maybe even a bit fairytale-like. So please give me more details.
Here are the main assumptions: a loan for every Pole with creditworthiness. Fixed interest rate, set in five-year periods, because these are the current requirements for a fixed interest rate, for the first 5 years: 5% per annum. Own contribution: min. 20%, which provides security for both the borrower and the lender. Over the entire loan period, even if we take it for 20 years, the only mandatory repayment is interest on the current debt. For example: if the loan is granted for the amount of PLN 500,000, the monthly mandatory repayment is only PLN 2,083.33, and with a debt of PLN 200,000 – the monthly installment, i.e. the one counted towards creditworthiness, is only PLN 833.33. That is, in smaller cities, where prices are sometimes several times lower, e.g. in Warsaw – a married couple whose income is at the level of two minimum wages, can purchase an apartment. Another interesting solution, which is also my idea: if after 20 years from the date of granting the loan there is still a significant amount of capital to be repaid, the borrower’s adult children can take the place of the borrower. This means there is no need to repay such an obligation. I have presented here only a few assumptions and innovative solutions: there are more of them in the full version of EKO KREDYT.
The biggest advantages of this project are?
Very high availability, precisely by lowering the creditworthiness threshold. Simplicity. Elimination of discrimination: we do not ask the borrower about their age or marital status – and this was the case in the aforementioned government programs, we also do not impose on the borrower who can live in their apartment (this is the case, among others, in the “Safe Credit 2 percent” program), in particular, the apartment can be rented to third parties. This loan gives a real sense of security: after all, we always “save” for the interest installment, because we have to live somewhere – in this case, renting an apartment will be much more expensive than repaying an EKO LOAN, where, on top of that, we are the owners of the apartment. And obvious benefits for the economy and the economy: no one pays anyone extra, and the housing market is growing like crazy – so the budget revenues will increase significantly. What is very interesting: developers will probably remember small towns then, because now new apartments are mainly being built in large agglomerations. Thanks to the fact that apartment prices in small towns will be at the level of 4-5 thousand. PLN, so with wide access to EKO LOAN, also for people with low incomes – such investments will sell like hotcakes.
The name says “FLEXIBLE”. Why?
One of the assumptions of EKO KREDYT is the possibility of paying – apart from the obligatory interest installment – any amount at any time to repay the capital. This in turn is a great incentive to save. If we have a spare PLN 500 in our budget, instead of going wild in the shopping mall, we can pay this amount towards the repayment of the loan, then the monthly interest in the following months will decrease. However, if for a long time we are “low” in the wallet, we limit ourselves to repaying the interest only. Another assumption of EKO KREDYT: each voluntary repayment of the capital is free of commission and does not require an annex to the loan agreement.
Where are the disadvantages and threats?
The obvious consequence would be a significant increase in housing prices, which happened during the “franc campaign” as well as during the government programs mentioned at the beginning of our conversation. That is why I introduced a restriction: you can only have one ECO CREDIT “per person” at a given time, only married couples would be entitled to two such loans. Otherwise, they would be disadvantaged compared to singles, and it was supposed to be fair and without discrimination (laughter). However, I see the biggest problem in the clumsy approach of the banking sector to innovative solutions. Certainly, in order for such a revolutionary form of mortgage loan to come into effect, it would be necessary for the KNF to issue an appropriate recommendation, i.e. for this institution to agree to this form of financing the purchase of apartments. Here I will also mention that one of the assumptions that I did not mention earlier: ECO CREDIT would be directed exclusively to people who want to buy an apartment, not a house or a building plot.
Could banks be interested in such a loan? You entered an interest rate of “only” 5% per annum – below the WIBOR rate.
In my opinion – yes. Please note that each bank currently has excess liquidity, and funds not used for lending constitute a significant cost for banks. So to the accusation of potential opponents of my idea that the bank will earn less on such lending, I answer: it is exactly the opposite! Banks will earn on funds that are currently lying fallow, which is why they only constitute a cost for a given financial institution. It should also be remembered that currently the average cost of obtaining funds by banks is certainly not much more than 2%. Another advantage is that with EKO KREDYT, banks will generally… have nothing to do, and bankers like this “work” the most. It will be something like “long-term lease of funds”. Another strong point of EKO KREDYT: I estimate the repayment rate of such loans at 97-99%, which is due to the specificity of the construction of the discussed product. Hence the mentioned feature of “security”, not only from the point of view of the borrower.
How can we interest decision-makers in this program so that it can be submitted to the Sejm as a bill? Do you think there is a chance of that?
At this stage of creating the described project, I treat it as a form of creative, intellectual entertainment. Our conversation today is a presentation of my solution in a light version. I am also working on expanding the described program, together with another mortgage banking expert – Krzysztof Czerkas. After creating such a concept, we will probably want to work on promoting the effects of our work. But will any politicians, the important ones, i.e. decision-makers, be interested in such solutions? Let’s leave this question unanswered for now.
Thank you very much for the interview and I invite you to the presentation of the full version of the program soon in the next issue (3/2024) of the monthly “Forum Polskiej Gospodarki”.
He was talking Krzysztof Budka
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Krzysztof OPPENHEIM: financial and real estate market expert, specializing in mortgage loans, entrepreneur. Since July 2016, he has also run an anti-debt collection law firm with specializations in: consumer bankruptcy, assistance to indebted entrepreneurs, “franc” disputes. Member of the Working Group for Restructuring and Bankruptcy in the Council of Entrepreneurs at the Ombudsman for Small and Medium-Sized Enterprises. More information on the websites: www.krzysztofoppenheim.pl and www.oppen-kredyt.pl