According to Amron-Sarfin in the first three quarters of 2018 the Polish have taken 160 k of new mortgage credits. The last year’s result (the best within the last 6 years) – that is over 190k within 12 months – will surely be outnumbered in 2019. The economic situation is more than good. What will happen on the mortgage credits markets next year?
The S class recommendation is not scary anymore
The S class recommendation has been the most change-bringing factor for the last couple of years. The recommendation released in 2013 by Komisja Nadzoru Finansowego is a set of good practices in the internal audit systems in banks and has significant influence on the maximal period of financing or the minimal personal contribution. The recommendation is meant to guarantee high quality of the credit portfolios of banks – to put it simple it helps the banks calculate the credit capacities of their clients in the safest way.
The constant icrease of the required personal contribution has been most painful for the borrowers. Since the release of the recommendation, the minimal required personal contribution has been increased by 5 percentage points yearly, reaching the level of 20 percent in 2017. There will no more changes to this level, however artifical and non-efficient it may seem. The banks have their own workarounds for this requirement, just like offering insurance for the missing amount.
‘Your keys to pay your debt’ rule – is this a new safety mechanism for the borrowers?
The second year passing without the increase of the minimal contribution does not mean that the S class recommendation will stay as it is. KNF considers some updates to be introduced as soon as in 2019 – once KNF are done with the corruption-related affair around their ex-chairman Marek Chrzanowski.
One of the proposed updates is introduction of the ‘Your keys to pay your debt’ rule, which means that a borrower would not be liable with their entire fortune in case of having problems with paying the money back. If the problems occur, the bank will only take over the mortgage. This is quite a good solution, which will allow some investors better risk management. It is, however, not going to affect the whole market, as most of the borrowers are interested in the cheapest option when it comes to choosing a mortgage. They usually go for cheaper, although more risky solutions. Additional options which are paid extra might not turn out too popular.
Time for fixed-term rates of interest
The second important change that can be introduced by KNF as of 2019 is encouraging all the banks to offer mortgages with fixed-term rates of interest – currently this option is rare and not popular, but I hope this situation will soon change.
The risk associated with the changes of interest rates is similar to fluctuation of currency rates. The consequences of the significant increase of these rates can be similar to the ones suffered by the borrowers who had taken mortgage credits in CHF a couple of years back – unfortunately this is not what the Polish would take under consideration too often. We are used to cheap mortgage credits. In my opinion introducing fixed rates for mortgages should go along with educating the borrowers on the risk linked to changing these rates.
Mortgage credits with fixed term interest rates are more expensive as banks include the costs of their own risks in their clients’ installments, but nevertheless this option is a bit safer for the borrowers. They pay more but they know upfront how much they will pay – and they are not afraid to see their installments go up in a few years. The decision regarding the rates is very much the decision regarding the type of risk you can accept.
The interest rates are going up…but not yet
The interest rates are recurring in the analysis done by property market professionals every year. The Polish have never in the history paid as little as now for borrowing money – the annual interest rate in some banks is below 4%, however mortgage credits in Poland are still more expensive than in Western Europe. The reference interest rate has been 1,5 % for almost 3 years and a lot of clients have already forgotten that the interest rates are not set in stone.
The macroeconomic data from Poland and the Euro zone are suggesting that the economy will be slowing down. We also need to take under account the increase of the inflation rates. Therefore, keeping the rates low forever is unrealistic. The question is when they will go up.
Until recently 2019 seemed like the most probable date, but some time ago Goldman Sachs, one of the biggest investment banks, predicted that the rates would stay low this year – and the newest report is even more optimistic for the borrowers as it states the rates will only go up towards the end of the year. This prognosis are reinforced by the CEO of NBP.
So how is 2019 going to look like in terms of mortgage credits? It seems like it is going to be one of the last quiet and peaceful years. The mortgage credits will become more expensive as of 2020 and everyone planning to take one should be aware of it.