On July 1, 2019 the Hungarian government launched its new child support program that offers a government-subsidized zero-interest loan up to 10 million HUF (around 30,000 EUR). The loan could convert into a non-repayable subsidy if three children are born during the term. 
 
In the first few weeks since its start, Hungary’s childbirth incentive loan (in Hungarian: babaváró hitel) has attracted massive interest from families. According to the statistics of the Hungarian loan comparison site Bank360.hu, more than 1,000 leads were recorded in just five days in the loan amount of 10 billion HUF (around 30 million EUR). Hungarian banks expect over 100,000 families to apply for the government-subsidized loan, with a total sum of 1 trillion HUF (approximately 3 billion EUR) to be loaned until the end of 2022.

Government-subsidized zero-interest loans for families

The childbirth incentive loan is available to young married couples. If just one child is born within five years, the loan is interest-free for the customer with only a 0.5% “guarantee fee“ to be paid annually to the government. The government will then release 30% of the actual debt after the birth of the second child and the entire debt once the third child is born.
 
To be eligible for the loan, the wife must be younger than 41 and at least one of the applicants must prove a minimum three-year continuous social security insurance history. Couples who divorce, move abroad or remain childless after five years will be required to pay back all of the government interest subsidies in one lump sum, and the loan will be transformed into a standard personal loan.
 
The subsidized interest rate is calculated using the following formula: average yield of the 5-year government bond auction rate * 130% + 2%. Interest rate if the loan is transformed into a standard loan: average yield of the 5-year government bond auction rate * 130% + 5%.

A game changer for personal loans and mortgages

As the founder of Bank360.hu, Tamás Turmezey, highlights, “Without a doubt, the childbirth incentive loan has the most favorable conditions on the market. Even if the couple remains childless, the total interest to be paid back beats most of the personal loan rates.” He further notes, “For most young couples, the childbirth incentive loan with the 20-year maximum term is a real alternative to mortgages. Significant interest from potential customers is clearly visible in web searches and on our website.”
 
While commercial banks provide the loans, the government pays the actual interest. Furthermore, the government gives banks a pay-back guarantee in case the customer defaults.  “This can be a very attractive opportunity for banks, as the government basically takes over the risk associated with these loans,“ Turmezey adds.

 
Very favorable credit application conditions

Although the government has defined the minimum credit criteria for the childbirth incentive loan, the banks are obliged to use their own underwriting policies to accept these customers. Originally, customers with bad credit history were excluded, yet a last-minute change in the loan regulations means that those with bad credit who have paid back their debts can apply for the full sum of the government-backed loan. According to the calculations on Bank360.hu, about one in ten applicants are on the so-called “KHR list” with negative data. (The KHR list is the official loan debtor database in Hungary.) The requirements for monthly net income are also very low, with some banks even providing the loan to applicants who jointly earn a monthly net minimum wage of 99,085 HUF (about 300 EUR) and allowing couples to owe up to 50% of their monthly wages in debt payments.

Real estate prices expected to soar further

Hungary’s real estate prices have already skyrocketed nationwide since 2014. As owning a property is considered to be of prime importance in Hungary, most families will likely invest most of their childbirth incentive loan in real estate, driving prices even higher. Those families who are not eligible for favorable loans or government subsidies will also have to pay higher housing costs.

Hungary’s efforts to increase low birth rate

The childbirth incentive loan is part of the Hungarian government’s plan to increase the country’s birth rate, which in 2017 was 1.45 per woman – below the EU average of 1.59. Other measures include subsidized mortgage loans, as well as government subsidies on real estate and family vehicle purchases. From September 2019, mothers of at least four children will be entitled to a lifetime exemption from personal income tax.

Criticism

Critics of the government say that the childbirth incentive program remains inaccessible to the very poor, the unemployed or those employed in the state-run public work scheme. Others point out that many divorced couples and those living in registered partnerships are excluded from eligibility. Hungary does not recognize same-sex marriages.

 
About Bank360.hu

Bank360.hu was founded in 2016 by experienced banking professionals Levente Surányi and Tamás Turmezey. The company’s mission is to supply a wide range of accurate banking product (mortgage, personal loan, bank account, etc.) calculators and provide financial education to the CEE region. For press inquiries and further analyses, please contact Patrik Veres at kommunikacio@bank360.hu.