Hungarian government to abruptly phase out home savings funds

Hungarian government to abruptly phase out home savings funds
Customers line up to sign last-minute contracts at home savings fund Fundamenta
By bne IntelliNews October 16, 2018

The Hungarian government plans to phase out the state subsidy on deposits with home savings funds, according to a bill submitted by the ruling Fidesz party on October 15. Parliament could vote on the proposal as early as October 16, after which it could be signed into law by Wednesday. Subsidies on existing contracts would be paid until the saving period ends. 

Under the Hungarian home savings fund scheme, there is a minimum four year pre-saving period, after which clients can tap their deposits and take out loans to buy or upgrade their homes.

Home saving funds began operating in 1997 and three players came to rule the market. Fundamenta-Lakaskassza, Hungary's biggest home savings bank, had total assets of HUF483bn (€1.5bn) at the end of last year, followed by OTP with HUF325bn and Erste with HUF75bn. The value of loans extended by the top three home savings funds was HUF289bn.

After the announcement, Fundamenta reported an influx of new inquiries and long queues at its offices. Customers will only have a couple of days to sign up for a new contract.  

Previously rumours emerged that the government would raise the state subsidy to HUF100,000 for annual payments of HUF480,000. Under the current scheme, there is a HUF72,000 subsidy on annual payments of HUF240,000.

Analysts said home savings funds offer a good investment opportunity with a risk-free annual yield of 10% due to the state grants. Fidesz MP Erik Banki, who heads the parliament's economy committee and submitted the proposal, said home savings funds had not served the purpose of supporting home construction effectively recently. He said the scheme has become inefficient and costly to the state and taxpayers.

Deposits in home savings funds accounted for one-third of savings, including pensions and health funds, they eat up three-fourths of total state subsidies, he added.

He blasted home savings funds for pocketing extra profits, HUF60bn since 2010. The scheme is expected to cost the budget HUF70bn this year, which is roughly 0.3% of the budget’s expenditures for 2018. 

Savings in the funds could be used for to build swimming pool or a sauna, he also lamented. 

The government’s swift move to do away with home savings funds caught market players by surprise.

The scheme has helped mainly lower-income households, and the swift termination of the scheme sends a wrong message and has a damaging consequence for households’ willingness to save in the future, some critics said. Other analysts said the government could have tightened the rules to make the scheme more efficient if it really wanted to. 

If the bill is passed, the government will channel money saved on state subsidies to home saving funds to increase funding for its home purchase subsidy scheme (CSOK). There are more than 90,000 Hungarian families, who have received HUF250bn in grants under the programme since 2015. The scheme favours upper-middle-income families. There is a maximum of HUF10mn in state grants for the purchase of new homes for families with three or more children.

Opposition MPs have lashed out at the proposal and suspect that the government will channel subsidies to companies that organise so-called National Home Purchasing Communities (NOK). 

Parliament approved legislation on the establishment of such communities in the spring of 2016, based on the UK’s building society model. Local media reported that Central NOK Szervezo, the first such company to receive a licence, had ties to businessmen close to Fidesz.

There is a maximum HUF300,000 subsidy on an annual payment of HUF1mn under the scheme.