In: Root » Legal and finance » Loans and mortgages
The main target for the mortgage loan market in Poland is residential property. The external financing ofresidential property can be divided into two main systems: • A state system used to finance or subsidize residential property, regarding both the construction stage and real property purchase using public funds. The system incorporates facilities such as repurchase of capitalized interest, bonus for housing savings, subsidies granted to communes' infrastructural investments, and so-called housing allowances paid from communes' budgets. It is partly the legacy ofan earlier system and the availability ofsome ofits instruments is being restricted (e.g., bonus for housing savings, repurchase ofcapitalized interest), and partly an attempt to establish a new system, meeting the requirements ofa market economy. For instance, housing allowances represent the national budget's attempt to replace the financing ofhousing stock by financial assistance targeted to specific individuals. The system does not account for more than 10% ofthe market. • A commercial system offinancing residential property made up ofuniversal and mortgage banks (in Poland in the banking sector there are two kinds of bank - universal and mortgage, they have different scope of activities and different rules of valuation for mortgage credits and loans). Loans can be used to finance the purchase ofa flat or a house in the primary or secondary market, as well as repairs and modernization work. In the course ofour discussion, we shall analyse the commercial system offinancing residential property. The system has been developing since 1996. Its establishment was possible, because the national budget ceased to subsidize indexed mortgage loans in 1995. Determinants underlying expansion of the mortgage loan market The market's expansion hinges on legal, economic and socio-demographic factors. The legal factors are, for instance, laws regulating the use of real property as a sound debt-securing collateral - the most important aspects are the security and freedom of trade and effective execution against property. The macroeconomic factors are primarily represented by GDP growth, inflation falling or staying at a low level, a declining level of unemployment and a growing population's incomes. The socio-demographic factors contributing to the market's growth are favourable change in the numbers ofpopulation and households, and more sophisticated cultural demand for housing quality. Legal determinants Rights to real property The most comprehensive right to any kind ofproperty is the ownership right. The Constitution ofthe Republic ofPoland provides in article 7 that the state shall protect ownership and the inheritance right, and guarantee complete security ofpersonal property; expropriation is only permitted for public purposes and with adequate compensation. The ownership right is transferable, inheritable, and subject to execution. A real property owner may use the right and mortgage his property to secure a debt. Perpetual usufruct is a special legal solution in force in Poland. The perpetual usufruct right can be granted by the Treasury and self-government authorities, and the beneficiaries can be either legal or natural persons. The right, as the ownership right, is transferable, inheritable and subject to execution. The usufructuary is very much like a regular owner; namely, they can use a property and dispose ofit, that is, also take out a mortgage, but whatever action they plan they must abide by the law and social norms (just like the owner's), and by the contract's provisions. Another right that makes its holder eligible for a credit or mortgage loan is a cooperative ownership right to a flat (a restricted property right). It indicates two essential attributes ofan owner - the right to use the flat and to dispose ofit. The holder ofthe right is not a proprietor, but his rights are very broad.
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