AMRON-SARFiN Report 3/2024
We are gradually leaving behind the ‘2% Safe Loan’ programme, and hopes for zero-interest loans seem to be fading, especially given the disappointment with the previous product. Analysing the results of banks’ lending activity and changes in residential market transaction prices, one might argue that the housing market is normalizing. It would be even better if interest rates were slightly lower. In the third quarter of this year, the number of granted housing loans amounted to 45,879, which was practically the same result as in the previous quarter (a slight increase by 1%). This quarterly level of mortgages translates straightforwardly into an annual result of approximately 180 thousand loans. Regular readers of the AMRON-SARFiN Report may remember the concept of the ‘organic level of banks’ lending activity’, which we coined at the AMRON Centre in the second decade of this century. This level, resulting from demographics, lifestyle and financial capacity, consistently generated about 180 thousand loans annually, regardless of government support programmes. A decade ago, this number translated into an annual value of new mortgage loans of PLN 40 billion. Meanwhile, only in the third quarter of 2024, banks granted new housing loans for the amount of almost PLN 20 billion. Similar to the number of loans, this matches the result of the previous quarter. Interestingly, this result was by almost 22% better than a year ago, when ‘2% Safe Loan’ programme was introduced. So there is no reason to complain or proclaim a crisis on the housing or mortgage market.
Moreover, we are currently observing a reversal of the trend of shrinking active housing loans portfolio. The decline in the number of active housing loan agreements in the third quarter of this year amounted to only 0.54% (to the level of 2.267 million). Regarding the value of Polish households debt due to granted housing loans, a slight increase (similarly to the previous quarter) by 1%, i.e. to the amount of PLN 493.210 billion, was noted. This reflects a clear slowdown in early repayments of loans granted in previous years, with a systematic increase in the average value of a new housing loan, which reached PLN 421,695 in the third quarter of 2024. This meant an increase in one year by 8.69% (nominally by over PLN 33.7 thousand). It was the result of rising prices, but also – importantly – the higher creditworthiness of borrowers.
Several factors supported decisions to take out housing loans: reports of the President of National Bank of Poland on the reversal of the upward trend in inflation, a slight decline in average interest rates for new housing loans, and noticeable easing of creditworthiness criteria by some banks for household borrowers. Additionally, stabilizing housing prices and wider offer of properties encouraged decisions to buy a flat. The Housing Affordability Index (HAI M3) has also remained stable for nearly two years.
The quality of the housing loans portfolio also improved – non-performing loans accounted for 1.69% of the total housing loan portfolio, which was one quarter less than a year ago. The share of non-performing CHF loans has also decreased significantly, driven by accelerated settlements between banks and CHF borrowers.
We forecast that this year banks in Poland will grant at least 200 thousand new housing loans with a total value exceeding PLN 84 billion. And even a record result of PLN 85.8 billion from 2021 is possible to achieve.
The normalization of the housing loan market positively impacts the residential construction sector, as suggested by Statistics Poland (GUS) data. The number of building permits issued in the third quarter of 2024 by developers amounted to 52,258, i.e. by 27.34% more compared to the third quarter of 2023. At the same time, they completed 30,946 units, which was by 4.71% less than in the previous year, but the number of started construction increased by 12.84% (it was 36,382 units). This propensity to initiate new projects was also enhanced by stable construction costs. Building material prices slightly diminished, while labour costs remained under pressure of overall wage growth. Nevertheless, the growth rate of construction costs has significantly slowed in recent quarters.
Transaction prices of dwellings in the largest Polish cities were still increasing, although quarterly growth rates were much lower in most locations than in previous quarters. In the third quarter of 2024, Cracow recorded the most significant price increase by 5.04%. Average transaction prices increased by 3.01% in Poznan, by approximately 2.5% in Gdansk and Wroclaw, and by only 1.89% in Warsaw compared to the second quarter of 2024. A slight price decline, by only 0.45%, was noted in Lodz. Some housing market analysts predict future decrease in house prices. For now, however, the declines were noted only in offer prices.
Year-on-year price increases, driven by the launch of ‘2% Safe Loan’ programme in the third quarter of 2023, reached 20% in Cracow, Wroclaw, and Poznan. In other major cities, double-digit annual price increases were also recorded, but at the level of 11-12%. Surprisingly, smaller cities experienced higher quarterly and annual price growth rates than larger agglomerations.
Meanwhile, residential rents increases in the third quarter of 2024 were slightly higher than in the previous quarter, likely due to seasonal effects related to the new academic year. In Warsaw, the average rent reached PLN 2,301, which meant quarterly increase by 2.59%, but only by 1.32% in comparison to the third quarter of 2023.
The Polish Banks Association actively participates in debates and consultations to develop proposals and recommendations for enhancing the efficiency of Poland’s banking sector, to the benefit the national economy, including financing solutions for residential construction market on both the demand and supply sides. We see an opportunity to implement systemic and responsible actions in this area, grounded in coalition agreement provisions. A critical issue, not only for the banking sector, is reversing the narrative of undermining long-term agreements between consumers and banks – a threat to the stability of Poland’s financial system. It is the government’s responsibility to stop this trend. We propose contributing to the development of long-term systemic solutions for creating a new housing loan market, leveraging proven financial instruments and solutions that effectively address housing needs in neighbouring countries. Unfortunately, despite a year under the current government, no significant proposals or actions in this area have emerged. In September, the attention of the entire government, and in particular the ministries responsible for construction and infrastructure, was focused on the areas of southwestern Poland affected by the catastrophic flood, but this does not justify the stagnation in this area.
Jacek Furga,Ph.D.
Head of AMRON Centre
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