AMRON-SARFiN Report 3/2022
The third quarter of 2022 brought a further decline in lending. Due to the decisions of the Monetary Policy Council taken in July and September 2022, NBP reference rate increased only by 0.75 p.p., to 6.75% at the end of the third quarter. On the other hand, however, the WIBOR index raised regardless the MPC’s decisions. At the end of the third quarter of 2022, WIBOR 3M, the crucial component of mortgage loans’ price and interest rate equalled to 7.16%. In addition, the assessment of the creditworthiness of potential borrowers has been effectively undermined by Polish Financial Supervision Authority recommendation, applicable since April this year, to use an increased safety buffer of 5 pp in the creditworthiness analysis process.
As a result, in the third quarter of this year, not only the volume of new lending decreased, but also the decrease of the loan portfolio, observed for the first time in Q2 2022, continued. Both the number and value of newly granted loans were lower than the number and value of loans repaid in the same period. Increasing loan interest rates encourage a growing number of borrowers to repay their loans earlier, at least in part.
As for September 30 this year, the number of active housing loan agreements in Poland decreased to 2 438 136. This meant a decrease by 45 403 loans compared to the end of Q2 2022. Total indebtedness of Polish households due to housing loans at the end of the third quarter of this year amounted to PLN 510.381 billion, compared to PLN 508.277 billion at the end of the previous quarter. From July to September this year, total value of active mortgage loans for housing purposes increased by 0.41%, i.e. by PLN 2.104 billion.
Lending activity of Polish banking sector in the third quarter was as much as 45% lower than in the previous quarter in terms of number of granted housing loans. In terms of value, the decrease reached the level of 48%. Compared to the corresponding period of the previous year, 69% fewer loan agreements were concluded, and their value was lower by 70%.
Decrease in the average value of a housing loan, from a record level of PLN 353 thousand at the end of Q2 to PLN 329 569 at the end of Q3 this year, recorded for the first time since 2012, seems to be a symptomatic signal of the housing loan availability trend reversal. I think it is worth recalling that the average value of a housing loan granted in 2012 year was PLN 195 thousand.
The share of loans with the LtV ratio exceeding 80% has been also, already for 10 years now, systematically decreasing from almost 53% in 2013 to 15.67% at the end of Q3 2022.
The housing market is adopting to the diminishing number of granted loans. Compared to the results from the previous quarter, the number of started constructions decreased by 32.17%, and the number of dwellings, for construction of which a building permit was issued, fell by 29.32%. In relation to the results of the third quarter of 2021, these numbers were lower respectively by 37.31% and 20.92%.
Although developers recorded an increase in the category of completed apartments – from July to September this year there were 36 353 of them, which was by 9.22% more than in the previous quarter, it should be remembered that these apartments were bought and credited at least a dozen or so months ago.
Compared to the results achieved by the developers’ sector in the corresponding period of the previous year, decreases were recorded in all three categories. Number of dwellings, the construction of which was started in Q3, 2022 decreased by 44.82%, number of dwellings, for construction of which construction permits were issued, was lower by 10.50%, while the drop in number of dwellings completed amounted to 0.62%.
In the third quarter of 2022, we continuously recorded a varied dynamics of changes in average apartment prices in the largest Polish cities. Increases in the average nominal price were recorded in Warsaw, Wroclaw and Poznan – respectively by 1.34%, 1.72% and 0.33%. On the other hand, decreases in average prices occurred in Cracow (by 1.38%), Gdansk (by 1.47%) and Lodz, where the highest dynamics of the average price was recorded – 3.66%.
Compared to the same period of 2021, a two-digit increase in the average price of apartments was recorded only in Wroclaw – by 11.73%. The lowest increase at the same time was recorded in Gdansk – by 0.75%.
The increase in the living costs and mortgage loans interests caused a further decline in the housing availability. The M3 Housing Affordability Index (M3 HAI) reached a level close to 134 points, last recorded at the turn of 2011 and 2012. However, after taking into account the 5% buffer required by the provisions of Recommendation S of the Polish Financial Supervision Authority, the index level equalled to 94.02 points, which was a result comparable to the results from the turn of 2007 and 2008 – the period with the lowest availability of housing in the history of M3 HAI quotations.
We are clearly heading towards the stabilization of transaction prices, which may last for at least the next two or three years, which, given high inflation, will in fact mean a real decreases in housing prices. This, in turn, after potential buyers get used to high mortgage interest rate, may result in maintaining mortgage lending at the level observed in the previous quarter. This will translate into a result of approx. 80 – 85 thousand loans in 2023. Of course, much depends on the situation beyond our eastern border and on the Polish government’s decisions on the European funds for the implementation of the Polish National Recovery Plan.
Due to rising interest rates and rising costs of living, the decline in the affordability of flats and the creditworthiness of potential borrowers resulted in shifting a significant part of the demand from the housing market to the rental market. Quarterly increases in rent rates in individual markets were (with the exception of Wroclaw) higher than the recorded increases in transaction prices. The highest increase in relation to the level of rent recorded in the previous quarter was recorded in Cracow – by 7.20%, and the lowest in Poznan – by 3.82%. The average rent rate for an apartment in Warsaw in the third quarter of 2022 amounted to PLN 2 187 and was higher than the one recorded in the previous quarter by 4.79%.
In the previous Report, I stated that the residential mortgage loan has become an instrument of a high political risk. The decision of the Regional Court in Katowice, which temporarily regulates that the interest rate on the disputed liability for the duration of the trial will be based solely on the loan margin, without taking into account the WIBOR index, raises further doubts. The greatest threat to the banking sector is the unlimited, as recent events have shown, risk of borrowers questioning any provision of long-term loan agreements, sometimes after several years from the date of their conclusion.
In this context, another problem arises in the sector. Growing share of loans with a periodically fixed interest rate seems to be another ticking bomb due to the still unsettled problem of compensation for early repayment of a loan. Without resolving this issue, any attempts to retain borrowers maintaining the repayment period specified in the contract, will be very difficult. This is also the reason why banks today do not take the risk of granting loans with a fixed rate for a period longer than 5 – 7 years. And for now, it looks like high interest rates will stay with us for longer.
Representatives of the Polish Banks Association have been participating for several months in discussion on the new shape of housing loans market organized by the Responsible Finance Club at the European Financial Congress. We offer solutions and financial instruments that have been verified over the years, ensuring incomparably more effective meeting of citizens’ housing needs in neighbouring countries.
And the time for taking reasonable systemic solutions and joining the support of the Polish government is high. We will end the year 2022 with only 125 000 newly granted loans, which will be the lowest result in 20 years.
Jacek Furga,Ph.D.
Head of AMRON Centre
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