AMRON-SARFiN Report 2/2021
During the second quarter of 2021, the continuous upward trend was observed both on housing and mortgage markets. Increase in the average value of newly granted loans also continued – in Q2 2021 it reached the level of almost PLN 330 thousand. Such an outcome resulted from growing disproportion in newly granted loans – from several quarters, share of loans granted for higher amounts, particularly those for PLN 500 thousand and more, has been consequently growing, while share of loans for the amount not exceeding PLN 300 thousand has been diminishing. Increase in the average mortgage loan amount was correlated with increases in housing prices.
Increases were supported by the same factors that we have observed just after the short COVID-shock in the middle of 2020. On one hand historically cheap mortgage loan, and on the other – no alternative for investments. Housing units were therefore purchased by those, who could afford a mortgage loan, but also by those, who had cash assets. Although rising inflation provoke growing expectations of NBP interest rates increase , as far as now no influence on mortgage loans demand was recorded.
Mortgage lending results recorded in Q2 2021 set new records. Over 67 thousands of newly granted loans was the highest number since subprime crisis and was higher by more than 17% comparing to Q1 2021. But in terms of value of new loans, banking sector hit the result never recorded before, amounting to over PLN 22 billion, that exceeded the record-breaking result of the previous quarter by more than 23% and the result of the same period last year – by more than 64%. Obviously, such an impressive upturn originated from enormous increase in demand, as well as from higher banks’ propensity to grant mortgage loans, particularly those of high values, that translated into lessen requirements regarding, among others, the down-payment level. At the same time, however, the LtV ratio of newly granted loans has been systematically diminished and therefore the visible trend of increasing borrowers’ down-payment has been recorded. In relation to Q2 of last year, share of loans with LtV ratio exceeding 80% diminished in Q2 2021 by nearly 9 pp, to the level below 30%.
Total amount of housing loans debt reached its maximum at the level of PLN 486 billion and the number of active mortgage loans exceeded 2.5 million.
Considering the results of the first half of this year, including in particular dynamics of mortgage lending increase in Q2 2021, the record-breaking banking sector’s result in housing financing at the level of PLN 80 billion may be reasonably predicted. Such result would mean granting of at least 240 thousands new loans.
Despite previous concerns, particularly at the very beginning of the pandemic, the pandemic itself didn’t worsen, but even increased the quality of mortgage loans portfolio. Such increase mostly resulted from three subsequent decreases in the NBP reference interest rate to the level of 0.1%, as well as from the ‘loan moratorium’ announced by Polish banks that every tenth borrower benefited from. Unfortunately, it must be recognized that such a dynamic increase in mortgage loans portfolio, resulting mostly from low interest rates, implies a huge risk that may materialise as soon as the interest rates grow, which will translate into significant increase in monthly instalments.
It is not my purpose to discourage potential borrowers from taking out mortgage loans, but I insist on careful verification of financial possibilities to repay a loan in a one, two or five-years perspective, when a monthly instalment presently amounting to approx. PLN 1 400 (for the average loan amount) will increase to the amount of PLN 2 thousands or more. In the light of the above mentioned, the idea of state guarantees for those potential borrowers, who have no own contribution, that would encourage them to take out a 100% LtV mortgage loan, seems to be at least hard to understand. After Prime Minister Marcinkiewicz, who in 2005 – 2006 encouraged Poles to take out CHF loans, presently Prime Minister Morawiecki encourages Poles to take out mortgage loans with variable interest rate and no down-payment. This is a simple way to create another disaster. That is why, , while describing record-breaking results of banking sector in mortgage finance, it must be stressed out as a precaution that these results did not effect from promotion or banks’ marketing campaigns. Banks did not stimulate the demand for mortgage loans.
However, high demand on housing market did stimulate investors. In Q2 2021, another records were noted also on that market. In relation to Q1 2021, the number of housing units, the construction of which was started, increased by more than 27%. The noted number of 80 883 housing units was the highest in the history of Polish housing industry. By nearly 3%, up to 88 860, increased the number of dwellings, for which developers obtained permits or submitted applications for construction, which also was a historically record result.
Comparing to Q2 2020, when the housing market was in a pandemic shock, increases were recorded in all housing market categories. Number of completed dwellings was by 10% higher, number of dwellings, the construction of which was started, grew by 70%, and number of issued permits for dwelling construction exceeded 38%.
In Q2, 2021, the average transaction prices of dwellings continued to rise in all surveyed locations. The highest increases were recorded in Poznan, Bialystok and Cracow – respectively by 4.87%, 3.71% and 3.46%. The average price in Warsaw in Q2 2021 amounted to PLN 10 224 per sqm and was higher by 1.50% comparing to the previous quarter. Increases in the average prices exceeding 1 percent were noted in Wroclaw and Gdansk (by respectively 1.80% and 1.63%). The lowest increase was observed in Lodz, by nearly 0.25%. In relation to the same period last year, the greatest increases in the average housing prices were registered in Cracow, Warsaw and Gdansk – respectively by 10.99%, 9.57% and 9.37%. At the same time, prices in Poznan increased by 5.79%.
Housing prices increase, but still there is no reason to presume that we face a speculative bubble. Observed changes in housing prices are justified by increases in salaries and the purchasers’ available savings and reasoned by growing costs of building materials, construction plots and salaries in housing construction sector. It is definitively not a ‘prices increase pumping’ phenomena that we witness nowadays, it is however not excluded that the correction of transaction prices may occur, as a result of – among others – more and more strange ideas presented by the government within the Polish Deal programme.
Analysis of rent rates on private rent sector specified in active (binding at the date of the analysis) rent agreements confirmed the stabilisation of rent rates level visibly diminished comparing to the period before the COVID-19 pandemic. Particular local markets seemed to try to set an optimal rent rate, what explains slight corrections recorded in Q2 2021, ranging from -1.44% in Lodz up to +1.82% in Poznan, while in Warsaw the average rent rate remained practically unchanged. Despite the intentions of the Polish Deal’s authors, subsequently revealed elements of the Programme, fiscally discriminant to the entities offering flats for rent, may translate to increase in rent rates, especially given the fact that the government’s assumptions actually close the Flat Plus programme, promoted during last six years, which included construction of flats for rent. Lack of consequence in promoted housing solutions is quite visible. Already in January 2018, Prime Minister Mateusz Morawiecki took a lead of a newly established Housing Council, the purpose of which was to speed up the implementation of the Flat Plus programme that was focused mostly on flats for rent. Today, he encourages young families to buy a flat for their own or to construct a house of a covered area not exceeding 70 sqm with a flat roof.
It should be considered positive that the government drew conclusions from its previous failures. It used to promise construction of 3 million of flats, after that it was 1 million and after the number of promised flats amounted to 100 thousands, while in Polish Deal assumptions, no particular number was specified. Change in the government’s narrative should also be recognized as a positive adjustment – after the Flat Plus Programme’s failure, which was planned to be focused on construction of flats for rent by a state, new concept assumes handling the responsibility for solving the housing problems over to the citizens themselves. Unfortunately, the new programme lacks well thought out, sensible ideas and systemic financial solutions. Polish Banks Association for years has consistently recommended solutions and instruments already proven in neighbouring countries as effective vehicles for securing the citizens’ housing needs. It is necessary to implement long-term, common and systemic solutions, including ideas that support fixed-rate mortgage loans (through supporting issues of fixed rate mortgage bonds) and/ or saving for housing needs that would allow to gather necessary funds for future loan down-payments.
As Polish Banks Association, we are ready to support every constructive proposal aiming to solve the housing problem in our country. We also have our own ideas and recommendations concerning instruments positively verified in other countries and we will resubmit them to the government. There are many proven ways and mechanisms to accelerate this flywheel of the economy, which can and should be housing industry. The Polish Deal does not have to mean coming up with new ideas. It is much more practical to rely on proven experiences. Such approach would also be something new in our reality.
Jacek Furga,Ph.D.
Head of AMRON Centre
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