The ‘First Home’ has kept sales of mortgage loans going during the crisis, allowing banks to boost their interest revenue with minimal risks and, on the other hand, prevented a faster decline of prices on the real estate market, forcing buyers to pay more.
The advantage for customers was that the scheme required a down payment of only 5% of the home mortgaged. However, this means more money to borrow and therefore higher revenue from interests for banks.
Demand for ‘First Home’ loans has increased over the last few months because of the rumors that the governmental guarantees would run out. Still, almost EUR380 million are available for guarantees, which means banks can grant loans until the end of the year at least.
However, since most of the homes bought via this scheme were old apartments, it did not generate more business for construction companies and did not help the economy out of the recession. Since it prevented old home prices from going down faster and therefore forced buyers to pay more, a question comes up and that is was the scheme created to help banks or homebuyers?
“It turns out it’s been a project that helped people, who were able to buy a home with a lower down payment and interests. ‘First Home’ helped banks, too, but I think it was more beneficial to people,” says financial analyst Dragos Cabat.
The government-secured mortgage loans are sold with a down payment of 5% of the value of the home pledged as collateral and charge about 4% a year for euros and 8% for lei in interest.
Even though the scheme drew the attention of several tens of thousands of customers and loans granted reached almost EUR3 billion, the difficult loan application approval process makes many unhappy. The applications have to be analyzed by both the Guarantee Fund and the bank, which means it takes longer than a regular mortgage loan would and requires more papers.
“I think the ‘First Home’ was created for banks and owners, because home prices stayed at the funding level set in the scheme. Without the scheme, they would have probably gone down,” says Ioana, 28, who tried to get such loans but finally gave up.
Only 62 loans granted through this scheme are in default, which means an a 0.08% non-performing loan rate, much lower than the average of the standard mortgage loans, even though the 5% down payment means consumers have to borrow more and pay a higher installment every month.
The higher the loan, therefore, the higher the interest revenue for banks, even though ‘First Home’ was introduced as a scheme to help people and not banks and real estate deals.
“The ‘First Home’ scheme was specially designed for a difficult economy, which gave average income people a chance to buy a home. Still it turned out to be less of a social program and more of a program for banks and owners,” believes Mihaela, 34, who took a EUR60,000 loan via the scheme last year.
(English version by Loredana Fratila-Cristescu)