First Home Funds Supplemented by Over 110 Million Euros

The Government is supplementing the guarantee ceiling for the First Home (Prima Casa) program by 500 million RON, explaining that the adoption of the new “giving in payment” law led to the rapid exhaustion of this year’s funds. In the first four months of 2016, 13,100 state-guaranteed loans were granted, their value being double compared to the same period last year.

First Home Funds Supplemented by Over 110 Million EurosThe Ministry of Public Finance proposes supplementing this year’s guarantee ceiling by 500 million RON (approximately 111 million euros). According to authorities, “the measure responds to requests from potential program beneficiaries and takes into account the significantly increased dynamics of guaranteed volumes within the program and the adoption of legislation regarding giving in payment.”

The total guarantee volume is approximately 15 billion RON (over 3.33 billion euros), corresponding to financing worth 29.8 billion RON (over 6.62 billion euros).

The default rate within the Program is 0.34% of total loans granted.

“The parliamentary legislative initiative regarding giving in payment, approved by Law no. 77/2016 after re-examination, created great uncertainty regarding both the law’s applicability to loans contracted through the First Home Program and the impact of this law on the real estate and mortgage markets. These factors led to a very high demand for guarantees within the Program in the first four months of 2016. An unprecedented situation was reached where the ceilings allocated to banks for the entire year 2016 were used extremely rapidly,” note representatives of the Ministry of Finance.

In the first months of 2016, 13,100 state-guaranteed loans were granted, worth 1.2 billion RON. The figures doubled compared to previous years: in the same period of 2015, guarantees worth 668 million RON were granted, while their value was 536 million RON in the same period of 2014. According to authorities, these developments led to the need for a second redistribution of the ceilings allocated to financial institutions in 2016.

“Under conditions of high utilization of allocated ceilings, to honor requests for ceiling supplements from financing credit institutions, the amounts set aside to cover guarantee needs following the first redistribution were allocated in favor of 4 lenders, who effectively consumed the allocated amounts. The Ministry of Public Finance will monitor mortgage market indicators for individuals in the immediate period and will soon announce the medium-term strategy regarding the operation of the First Home Program. In developing this strategy, factors such as the increase in the population’s real disposable income, following fiscal measures and salary increases in recent years, as well as the evolution of the mortgage market relative to that of the First Home Program, will be considered. The goal is for this Program not to produce market distortions in the medium term,” explain the authorities.

At the same time, the Ministry of Public Finance proposes including legislative provisions related to the First Home Program to hold participating financing institutions accountable, in the sense of avoiding situations of assuming credit commitments in the absence of available guarantee resources. This leads to encouraging clients to sign pre-sale agreements without having certainty regarding the source of financing and guarantee.