AMRON-SARFiN Report 2/2023
The results of the second quarter clearly confirmed the reversal of downward trends in lending observed already in the first quarter. After five quarters of dynamic declines in banks’ lending activity, the first quarter of 2023 brought increases in both the number and the value of newly granted housing loans and this trend has strengthened in the second quarter. However, the scale of mortgage lending remained at a very low level, and the high growth dynamics was primarily due to the base effect, i.e. very poor results of 2022.
This revival of housing loans market was influenced by the Monetary Policy Council, which has maintained a stable NBP reference rate at the level of 6.75% since September. It resulted in gradual decrease of WIBOR 3M index to the level of 6.90% at the end of the second quarter.
The average interest rate of a model mortgage loan at the end of June 2023 accounted for 8.77% – it was by 0.29 pp less than as for the end of the second quarter of last year. The verification by the Polish Financial Supervision Authority of its decision of March 2022, as a result, among others, of Polish Banks Association appeal, and lowering since February 2023 the buffer amount for creditworthiness calculations from 5% to 2.5% for loans with a periodically fixed interest rate was another impulse contributing to increased demand for mortgage loans. Decisions about taking out a housing loan are eased by psychological familiarisation with high but stable inflation and interest rates, especially in the context of public statements by the Monetary Policy Council members about the possible first cut in NBP interest rates in the coming months. The increase in wages also matters.
The number of housing loans granted in the second quarter of 2023 amounted to 30 789, which was by 40.19% more compared to the previous quarter, and their value amounted to PLN 11.3 billion, which meant an increase by 51.22%. Of course, in relation to the same period last year, these were still lower numbers. The average value of newly granted housing loans recorded in the second quarter of 2023 amounted to PLN 366 139, which was a record-breaking value. The previous record was set in the first quarter of 2022 with a result of PLN 353 727.
The sustained recovery in housing loans market was also determined by the government’s ‘2% Safe Loan’ programme. Those who did not have the chance to take advantage of this programme reached for a commercial mortgage loans, in order to buy a property in time and pay a relatively reasonable price for it.
The level of repayments of active housing loans was still higher than the new loans. . The second quarter of 2023 was the sixth in a row period of decrease in the portfolio of active housing loans.
The total value of Polish households debt due to granted housing loans at the end of the second quarter of this year amounted to PLN 478.634 billion, which meant a decrease by almost 7% in comparison to the record level at the end of 2021. The number of active housing loan agreements decreased from 2.548 million to 2.302 million in the same period. It meant a decrease by 10.68%, i.e. nominally by 246 loans thousand.
The housing construction sector, which achieved very good results in the previous year (not so good for the banking sector) and completed in 2022 a record-breaking number of over 238 thousand new flats and single-family houses, in analysed period has demonstrated investment reticence as in the first quarter this year. In the second quarter housing indicators increased in comparison to the first quarter. However, in comparison to the second quarter 2022, the number of constructions started was by 29.20% lower and the number of dwellings for construction of which a building permit was issued was by 35.46% lower whereas the number of dwellings completed was by 3.31% higher.
After high increases in transaction prices in Q1 2023, the analysed period of Q2 was characterised by slightly lower increases. The highest increase in the average transaction price in Q2 2023 was recorded in Warsaw – 2.84%. Much lower price increases were recorded in Wroclaw (by 0.73%) and Lodz (by 1.01%). In other analysed cities, slight decreases in average prices were recorded – in Gdansk by 1.83%, in Poznan by 1.61% and in Cracow by 0.24%. In comparison to the corresponding period of 2022, the highest increases in the average price of apartments were recorded in Warsaw (by 6.99%), Wroclaw (by 4.93%) and Cracow (by 3.51%), while a slight decrease was recorded in Lodz (by 0.14%).
After the first month of the ‘2% Safe Mortgage’ programme, a discussion has flared up as to whether or not this programme has had an effect on the increase in housing prices. Of course, in our analysis of transaction prices in Q2 2023, this price increase effect is yet to be seen, as the first transactions financed by this loan only took place in July 2023. We have therefore devoted a new section of our Report to this topic, in which we analyse the changes in offer prices in the housing market. And here we clearly observe that the closer we got to the launch of the programme, the more visible its impact on offer prices became. Since the programme was announced in mid-December 2022, the offer prices of flats have been increasing month by month. In Warsaw, the increase in offer prices between December 2022 and June 2023 exceeded the 10% level. This phenomenon is also confirmed by an analysis of the change in the number of offers with the change in the offer price. Similar results are obtained by analysing the markets in Cracow and Gdansk.
In contrast, the second quarter of 2023 brought a stabilisation of the rental market due to an increase in the number of flats for rent. As a result, we observed slight decreases in the level of rents in the majority of markets covered by the analysis. The highest decrease in relation to the level of rents recorded in the previous quarter was in Lodz – by 1.88%. Rental rates dropped more slowly in Warsaw – by 0.72%. Increases in average rental rates were recorded during this period in Cracow – by 0.31% and Katowice – by 2.62%.
If it comes to the credit market forecasts, perhaps with the interest in the ‘2% Safe Mortgage’ programme, the banking sector will achieve a result close to that of the disastrous year 2022.
It should be emphasized that the ‘2% Safe Mortgage’ programme means the government’s return to thinking about supporting Poles’ aspirations towards homeownership, after the failed experiment with rental housing under the ‘Housing Plus’ programme (‘Mieszkanie Plus’). Unfortunately, it is further evidence of the lack of stability and consistency of measures and the lack of analysis of their effects. After the first month of operation of the ‘2% Safe Mortgage’ programme, it can be concluded that this firework has backfired. The government is delighted with the scale of interest in reaching for a cheap (subsidised by the rest of the citizens) housing loan, which, especially on the eve of the parliamentary elections, is not surprising.
The second element of the Flat for Start Programme – the Housing Account – deserves a positive assessment. This instrument took advantage of the abolition of the capital income tax (commonly named the “Belka tax”), recommended for many years by the Polish Bank Association. When advertising the Housing Account, government representatives repeatedly justified the proposal to introduce the Housing Account in their public speeches with the positive experience of the development and operation of savings and building societies in other Central and Eastern European countries, whose launch in Poland has been recommended for many years by the Polish Bank Association. Why, then, are we not implementing the institution of these savings and building societies, which have been so positively evaluated and which have proven their effectiveness in our southern neighbours for 25 years of operation, but instead opting for a half-hearted solution?
Analysing the successive decisions and actions of the politicised administration with regard to the banking sector over the past few years and the unreflective decisions of the courts resolving disputes between banks and borrowers, one can conclude that the residential mortgage loan has become a high-risk (political) instrument. As long as housing will be a material for political games, and successive governments will interfere with the business relations of the (housing) market participants by means of administrative methods and stock actions, the housing problem will not be solved, as we have seen evidence of both back in the People’s Republic of Poland and in the past 30 years, i.e. after the economic transformation. Politicians with their action-oriented measures sometimes achieve results they can boast of, but only for a short time, but the damage caused by them often requires many years of corrective action by the free market. Unfortunately, the pre-election atmosphere is not conducive to the development of systematic solutions for the mortgage market, but it could certainly be used to increase the supply of land for housing construction, if only by putting land owned by the State Treasury, state companies or local governments, laboriously collected and recorded in National Property Stock under the ‘Housing Plus’ programme.
We look forward to the possibility of reliable discussion, exchange of arguments and presentation of real numbers after the election decisions on October 15, 2023. We will try to once again present our expertise in this area, proposing solutions and financial instruments verified over the years to ensure incomparably more effective protection of citizens’ housing needs in neighbouring countries.
Jacek Furga,Ph.D.
Head of AMRON Centre
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