Romania’s state-backed First House program gets additional funding

Romania’s Finance Ministry announced it would increase the guarantee ceiling for the First House program by RON 500 million (EUR 111.4 million). The local banks already exhausted RON 1.2 billion (EUR 267 million) worth of state guarantees in the first four months of this year, due to the giving in payment law. By comparison, in the first four months of 2015, the guarantees granted within this program were some EUR 150 million. The uncertainties around the new law on mortgage loans made people ask for more guarantees within the First House Program in the first four months of the year. Romanians were worried that the new giving in payment law would apply to the First House program, which would have determined banks to impose more restrictions and render the program useless. However, this was not the case, as the program was removed from the law following an amendment proposed by Romania’s National Bank (BNR). The First House program is the only solution for many Romanians to get a mortgage loan and buy a house. Under this program, the state guarantees half of the mortgage loans’ value for people who buy their first houses using credit. The loans granted within this framework have lower interest rates and lower down payments (only 5% of the property value). The Finance Ministry also announced it would adjust the First House program to adapt it to the new market conditions, so that it would not distrort the market in the medium term. Since the Government initiated the program, in 2009, the state has issued some RON 15 billion (EUR 3.35 billion at today’s exchange rate) worth of guarantees, which backed up some 178,000 mortgage loans worth twice this amount. The default rate on loans within granted under this program is only 0.34%. The giving in payment law, which entered into force last week, allows mortgage debtors to discharge their debts to banks by giving them the mortgaged assets. After the law became effective, several major banks, including market leaders BCR and BRD and state-owned CEC Bank, have announced that they would increase the down payments required from clients and the interest rates for new mortgage loans, which will likely freeze mortgage lending. Some banks (Raiffeisen, Garanti) did this even before the Parliament passed the law. Top bank CEO explains how the new law on mortgage loans will change the lending process in Romania