The data provides by the Association of Polish Banks shows that the Poles are more and more eager to take mortgages. The buyers are happy with the low interest rates and they are unaware that the developers are even more happy. What are the reasons of the high demand for mortgages – and what can its conseqences be?
In the second quarter of 2018, the banks granted 53,7 k of new mortgages in total – that is 7,7 % more than in the second quarter of 2017. These mortgages are worth 13,74 billion of PLN, which is 17,6% more than in 2017.
The difference between the dynamics of the growing number of mortgages and what they value gives us a great picture of the property market. The 10 percentage points difference is mainly the result of the increase of the prices of properties – says Kuba Karlinski, the CEO of Magmillon.
In theory, the higher value of mortgages could result from the fact that the Polish are getting richer and richer – we are earning more money so we can buy bigger flats and pay higher installments. The difference, however, is too big and results mainly from the increase of the prices. We need to borrow more money to buy the same thing as we used to buy.
Why are mortgages so tempting?
The Polish take more and more mortgages as the prices are going up. That means the demand for flats is still enormous. The buyers are interested in buying properties and think that now is the right time, regardless the fact that the flats are getting more expensive – and they are right about it – comments Kuba Karliński.
One of the most important factors contributing to mortgages being so popular are low interest rates. The main reference rate is 1,5 %, which is the lowest in the history. The main reference rate influences Warsaw Interbank Offered Rate which, in turn, makes the basis of the interest rates for the mortgages. This means that nowadays borrowing money from the bank is simply cheap – the difference between what we borrow and give back is relatively small.
Obviously everyone applying for a mortgage should be aware that the main reference rate and Warsaw Interbank Offered Rate will eventually go up.What is important here is the psychological factor. The National Bank of Poland has not increased the rate for 6 years now (it has been either lowered or – for the last 3 years – kept stable). The current rate has been intacted since March 2015. The Poles have become used to cheap mortgages.
Low interest rates make developers and investors happy
Who is going to benefit from the low interest rates? The 1st answer is obvious – those who take mortages! At the end they are the ones paying lower installments – but let’s conduct deeper analysis. The potential buyers will always be on the market – this is obvious. A lot of people cannot afford buying their own flats and to make their dream come true they need to borrow some money. The time of cheap mortgages seems like a perfect occasion.This is exactly the psychological mechanism used by the developers and investors interested in selling properties. If the buyer can borrow money more easily – they can also pay more. This is one of the reasons of increasing prices of the properties. When you understand this simple rule that cheap mortgages create higher demand and higher demand makes the prices go up, you will see that low rates have more consequences that it might have seemed.
Invest today as tomorrow can be too late
How is it all going to end? As it is with each and every cycle, one day we will face the wall. The demand will go down and the prices will go up. That will make the buyers stop buying.
Considering the statistics from The Association of Polish Banks, we still have time until the mortgages will have become less popular. The Polish are still wanting to buy properties – and they can afford them with the current prices.
Obviously you need to remember about the potential catalysts of this process. Increasing the rates or an unexpected credit crunch will speed up the moment of the market slowing down – explains Kuba Karliński.
The total economic situation should not be a surprise to us. Low interest rates, together with the stable economy, low unemployment rates and rising salaries are perfect conditions for borrowing money. You need to however stay focused and remember the words of a popular song – ‘nothing lasts forever’.