AMRON-SARFiN Report 1/2024

After last two quarters of 2023, when lending activity and the housing transaction market were driven by the electoral hit called “Safe Credit 2%”, it was obviously hard to expect that the results of the first quarter of 2024 would maintain this upward trend. Instead, in the first quarter of this year there was a decrease in sales of new housing loans compared to the results of the previous quarter, both in quantitative and value terms. From January to March this year, banks concluded 64 504 loan agreements for housing purposes, which was 6.33% less compared to the fourth quarter of 2023. The decline is small, as this number of newly granted loans includes over 32 000 loans from the “Safe Loan 2%” programme that were not concluded last year. The total value of granted housing loans amounted to PLN 26.876 billion, which means a decrease of 4.52% compared to the previous quarter.

Certainly, compared to the same period in 2023, the results of the first quarter showed an impressive increase of 193.63% in the number of loans granted and almost 260% in the value of newly granted loans.

The decision to take out a mortgage loan is facilitated by the psychological acclimatization to a high but stable level of inflation and interest rates, especially in the context of expert opinions appearing in the public sphere about expected reductions in NBP interest rates. Even if this reduction is expected over quarters rather than months. The increase in wages is also significant. All of this contributes to the growth of creditworthiness, as seen in the AMRON Centre’s Housing Availability Index.

The portfolio of active loan agreements continues to shrink, meaning that the number of fully repaid loans still exceeds the number of newly granted loans. From January 1, 2022, the number of active mortgage loan agreements in Polish banks decreased by over 257 000 to 2 291 000, and the value of the mortgage portfolio decreased by over PLN 27 billion to PLN 484 billion. However, at the same time, the average value of a mortgage loan in the first quarter of 2024 reached the level of PLN 417 385, which means an increase by 23% (nominally almost PLN 78 000) over the year. This is due to rising prices and higher creditworthiness of borrowers.

A worrying phenomenon is that in the first quarter of 2024, for the sixth consecutive time, we observe an increase in share of loans with an LTV ratio above 80%. Their share more than doubled from 17% in 2022 to 38.30% in Q1, 2024. This is an obvious result of another product from the previous government – the government guarantee for the missing down payment. However, this is also one of the signals of the deterioration of the mortgage loan market. The borrower’s down payment has played and should continue to play an important role in assessing the potential borrower’s creditworthiness.

Another worrying sign, indicating the weaker financial condition of new borrowers, is the lenghtening of the maturity period of newly granted loans. Compared to the results recorded in the fourth quarter of 2023, the share of loans with a maturity period up to 15 years decreased by 4.16 percentage points. At the same time, the share of loans with a maturity period between 25 and 35 years increased by 4.17 percentage points.

This should be particularly noted in the context of very high quality of current PLN loans portfolio. As of the end of March 2024, share of non-performing loans in the total mortgage loan portfolio was 2.14%, i.e. lower by 0.07 percentage points from the previous quarter and by 0.15 percentage points from a year ago. The situation is different for the portfolio of foreign currency loans, especially those in CHF. The share of non-performing loans in Swiss francs at the end of the studied quarter was as high as 16.02% of the portfolio, up by 3.65 percentage points from the previous quarter and by 7.44 percentage points from a year ago. This is not a result of the poor financial condition of Swiss franc borrowers, but their deliberate cessation of servicing CHF loans in connection with entering into a legal dispute with the bank. The total number of lawsuits in CHF cases has already exceeded 160 000.

The housing sector is characterized by further growth in investor activity. Although the number of completed dwellings decreased by 17.68%, this decline should be attributed primarily to seasonal factors. The number of newly started housing constructions increased by 19.66% to 60 078, while the pool of dwellings for which building permits were issued increased by 3.27% compared to the fourth quarter of 2023. Compared to the previous year, these increases were much higher, amounting to 55.75% for newly started constructions and 32.83% for building permits issued.

The first quarter of 2024 brought further increases in housing prices in all analysed cities. The highest increase in the average transaction price per square meter of usable residential area was recorded in Warsaw – to the level of PLN 13 986/sqm., an increase of 5.54% compared to the value recorded in the fourth quarter of 2023. The lowest price dynamics were recorded in Wroclaw – an increase of 3.48% to the level of PLN 10 943/sqm.

Compared to the same quarter of 2023, the highest price increases were recorded in Poznan (21.76%), Wroclaw (20.57%), Cracow (20.49%), and Warsaw “only” 19.50%. The lowest increase was in Gdansk – 14.84%. These indicators best summarize the effects of the “Safe loan 2%” programme.

Stabilization has occurred on the housing rental market. The highest rent rates increases were noted in Lodz, but the increase did not exceed 1%. On the other hand, in both Wroclaw and Cracow, monthly rental costs decreased by almost 2%.

Compared to the same period last year, the surprising increase in rent was in Katowice – by 4.24%, especially since in other surveyed locations, except for Cracow, rent rates decreased. The deepest decline was in Lodz – by 3.29%. The test for the stability of the commercial housing rental market will be the “September campaign”, when students start looking for suitable accommodation for the next academic year.

The future of the mortgage market in 2024 largely depends on whether the government can launch the “Credit for the Start” programme. After the formation of the new government, I expected a chance to develop new, long-term programmes to solve the housing problem in Poland. As the banking sector, we have recommended proven solutions, positively verified in other countries for many years. Meanwhile, the new government, despite the total criticism of the previous government’s electoral hit, “Safe Credit 2%”, decided to replicate this product in a slightly changed form. I used the term “product” instead of “programme” intentionally. The initial widespread enthusiasm for the product proposed by the new government is fortunately gradually cooling. There are even signals that it may not be implemented. Regardless of the fate of this product, I look forward to the opportunity to discuss systemic solutions that go beyond the duration of one government term, because the Polish housing market needs a coherent, comprehensive and, most importantly, long-term housing programme.

The financial resources of Polish households have already exceeded PLN 2.8 trillion. We are looking for attractive ways to invest the surplus funds. In the first quarter of 2024 alone, Poles bought government bonds worth a total of PLN 15.5 billion. We can and should direct these surpluses towards investing in rental housing to our collective benefit. A proven tax relief for investors, restoring the possibility of amortizing the value of purchased rental housing, and finally introducing equal rights for tenants and landlords would help solve the housing problem in Poland through a dynamic increase in the number of rental housing.

For those who do not want or cannot manage rental housing investments themselves, we should create the possibility of investing in this market through REIT funds. Only a dynamic increase in the construction of rental housing can fill the existing housing gap.

I was pleased to read the statement of the new, though already former Deputy Minister of Development and Technology, Krzysztof Kukucki (former, as he was elected mayor of Wloclawek in the local elections), who said that if someone wants to buy an apartment and can afford it, they can do so, but if someone does not want to buy an apartment or cannot afford it and needs their own place, it is the role of the state and local government to ensure that this need is met. I would only add to the list of rental housing providers the private “apartment owners” and institutional PRS rental companies.

If we also activate the inclination towards long-term, systematic saving for purposes (not only) related to housing, ideally through a fixed-rate contract credit agreement in the form of building societies, or finally streamline the stumbling process of issuing and trading covered bonds that has been lagging for 25 years, then we will have a long-term, coherent and effective housing programme. Of course, to this puzzle should be added the actions of local governments in the area of communal and social housing.

We are waiting for the opportunity for a thorough discussion.

Jacek Furga,Ph.D.
Head of AMRON Centre

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