Romanian mortgage market still extremely dependent on the Prima Casa programmeMore information on this topic is presented in the PMR report:
- May 2017
- Delivery: PDF / online access
- Forecasts: 2017-2022
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The Prima Casa (First Home) subsidised mortgage support programme is by far the most popular residential construction support programme in Romania. The key advantage of the Prima Casa programme is the fact that beneficiaries could buy a residential property by making an advance payment of at least 5%, compared to more than 15% for regular mortgage loans.
It was initiated in mid-2009 in order to revive the residential construction sector, as well as the real estate market, which had experienced a collapse. The Romanian government shared the risks with banks in a 50%-to-50% scheme for loans awarded within the programme between 2011 and 2016. Until 2016, Prima Casa (First house) loans had demanded an interest rate equal to the three-month EURIBOR rate plus a fixed margin of 4% per year for loans in euro and the three-month ROBOR plus up to 2.5 p.p. for mortgages in RON. Since 2016 the interest for new Prima Casa mortgage loans must not exceed three-month ROBOR plus up to 2 p.p. Subsidised loans were allocated in amounts of:
- up to €57,000 for the purchase of existing apartments
- up to €66,500 for houses where work is still in progress
- €71,250 for the construction of a new house from scratch by people organised into associations.
Nevertheless, the programme was adjusted substantially in early 2017. In accordance with the new conditions approved by the government, from 2017 onwards the government will share the risks with banks in a 50%-to-50% scheme only for loans awarded for the purchase of relatively new residences (in buildings which are up to 5 years old) and of residences in seismically retrofitted buildings (retrofitted over the past five years). Furthermore, the government has agreed to provide more financial support for the acquisition of new properties. From 2017 onwards, subsidised loans will be allocated in instalments of up to €66,500 for the purchase of apartments up to 5 years old (up to €57,000 was awarded before 2017). For the purchase of an apartment commissioned more than five years before the mortgage application, a subsidised loan will be granted in instalments of up to €57,000 (same as before) and the government will share the risks with banks in a 40%-to-60% scheme.
We estimate that between 2012 and 2016, about 149,200 applications for Prima Casa mortgages worth almost €5.3bn in total were approved, including the record high of about 38,722 warranties in 2015 and almost 33,000 loans with a total value of about €1.23bn awarded in 2016.
Initially, the government has budgeted Prima Casa support warranties for an aggregate amount of RON 1,690m (€380m) for 2016. Later, the government expanded the Prima Casa budget three times over the year:
- according to Government Decision no. 366/2016 dated 18 May 2016, the government expanded the Prima Casa budget for 2016 by RON 500m (€112m)
- according to Government Decision no. 703/2016 dated 28 September 2016 the budget increased by another RON 500m (€112m)
- according to Government Decision no. 899/2016 dated 29 November 2016 the government budgeted extra RON 250m (€55m) for Prima Casa support warranties.
Thus, after all of the allocations last year, the total funding for the programme for 2016 has been expanded to RON 2.94bn (€655m).
For 2017 the government has allocated Prima Casa support warranties for an aggregate amount of RON 2,675m (€600m). Considering also the amount supported by banks, we estimate that the funding given within the Prima Casa programme will total about RON 5.65bn (€1.27bn) in 2017, which would be 2-3% above the total achieved last year.
It is safe to assume that mortgages within the Prima Casa programme covered more than 85% of total mortgage loan sales by banks between 2012 and 2016 in Romania, considering that during the period in question the total value of outstanding debt for home purchases logged a net increase of RON 24.8bn (€5.5bn) and that only a small proportion of previously granted home loans have reached maturity date as the Romanian mortgage market is relatively young. It is estimated that the total value of outstanding debt for home purchases in Romania was only about €2.3bn at the end of 2006, whereas at the end of 2016 it was seen at RON 58.6bn (€12.9bn). Furthermore, about 159,100 Prima Casa mortgages were on balance sheets in the banking sector at the end of 2015, corresponding to 91.4% of the outstanding mortgage loans in Romania.
As the economy is steadily improving and the financial system is encouraged to boost mortgage lending, the Prima Casa programme is projected to receive diminishing support from the government in the coming years. Banks operating in Romania will be increasingly encouraged to offer non-subsidised mortgages at terms and conditions comparable with those for Prima Casa loans, mainly by gradually reducing the upfront payment rate as the difference in interest rates is already marginal. In April 2017, loans within the Prima Casa programme were granted at an effective interest rate of 3.4-3.6% (the indexation of the three-month ROBOR plus up to 2%), whereas the average effective interest rate on non-subsidised mortgages was mostly in the 4.1-4.7% range.
Overall, the programme has been only a partial success. The majority of funds that were accessed were used for the acquisition of old homes. It is estimated that since the launch of the programme back in 2009, only about 35% of loans have been granted for the acquisition of relatively new dwellings.
More information on this topic is presented in the PMR report:
Construction sector in Romania 2017. Market analysis and development forecasts for 2017-2022