AMRON-SARFiN Report 4/2022

For the mortgage sector, 2022 was a period of downhill from the slope it has been climbing since 2014. A series of successive increases of the basic interest rates, initiated in October 2021, resulted in even higher increases in the WIBOR ratio, making mortgage loan more and more expensive. We entered 2022 with the NBP reference rate at 1.75%, but we closed it with the reference rate at the level of 6.75%.

Rising cost of living combined with high interest rates on loans resulted in decrease in availability of flats. The Housing Availability Index M3, monitored for 14 years by the AMRON Centre, dropped from the level above 200 points, which had been maintained for the last 5 years, to a level similar to the one recorded in 2012.

A symptomatic signal of a change in the trend on the credit market was decrease in the average value of newly granted housing loan, recorded for the first time since 2012, from the record level of PLN 353 000 at the end of the first quarter of 2022 to PLN 325 thousand at the end of 2022.

The number of housing loans granted in the fourth quarter of 2022 amounted to 18 932, i.e. 10.77% less compared to the previous quarter. Their value amounted to PLN 6.2 billion, which was 11.97% less than in the third quarter of the previous year. Throughout 2022, banks provided 126 thousand new housing loans, which meant a decrease by 50.75% compared to the results of the record year 2021. In terms of value, the result of PLN 43.6 billion achieved in 2022 was lower by 49.11% than in the previous year.

From the beginning of 2022, not only a systematic decrease in volume of new lending was observed, but also a systematic, quarter to quarter decrease in number and value of the portfolio of active loan agreements. Both number and value of newly granted loans in each subsequent quarter were lower than the number and value of loans repaid in the same period, as the rising interest rates on loans encouraged borrowers to repay their loans earlier, at least in part. The number of active housing loan agreements decreased over the past year by over 182 000 loans, down to the level of 2 366 thousand units, and the total value of the mortgage portfolio decreased by PLN 15.2 billion, to PLN 496 billion.

In comparison to the credit sector, the results of the housing sector looked very good. In 2022, construction of 238.6 thousand flats and houses were completed, that was a few thousand more than in the record year 2021. This marks the best result since 1979. However, it is difficult to celebrate this achievement, when at the same time the housing construction sector experienced the most serious economic downturn of last several years. Compared to the numbers recorded in 2021, the sale results on primary market in 2022 were lower by 38% , and the number of transactions returned to the level noted in 2013 – 2014. Limited access to loans, a decrease in the sale of apartments and a sharp increase in construction costs meant that the numbers of both issued building permits and new investments significantly declined. In result, the number of commenced investments decreased by over 30%. The number of housing units, the construction of which has started in 2022, was lower by as much as 77 thousand than in the previous year. We will run out of these flats in two or three years, when lending will increase and the demand for flats will increase as well.

In view of decline in transactions number and a drastic reduction in number of newly granted mortgage loans, year 2022 was marked by a slowdown in transaction prices increase, which at the end of the year reached an average of approx. 3% in the largest agglomerations. The highest increase in prices, at the level of 6.8%, was recorded in Wroclaw. Ultimately, price growth slowed down and stopped “on a plateau”, as the President of the NBP would say, and may remain there for the next two years, which, given high inflation, would mean de facto a real decline in housing prices.

Decrease in price availability of flats and decline in creditworthiness of potential borrowers resulted in shifting a significant part of demand from the housing market to the rental market. In addition to the persistently increased demand for apartments for rent from refugees from Ukraine, this was the most important factor of the significant rents increase in 2022. However, also on this market, the increase in rent rates at the end of the year slowed down, although year-to-year increases were still double-digit. In annual terms, the highest rent dynamics, amounting to 19.16%, was recorded in Cracow.

Analysing the successive political decisions with regard to the banking sector taken in the past two or three years and the decisions of courts settling disputes between banks and borrowers, it can be concluded that a residential mortgage loan has become an instrument of high… political risk. The greatest threat to the banking sector is, as recent events have shown, unlimited risk of borrowers questioning, with the applause of politicians, any provisions of loan agreements, in huge part signed several years ago and, so far, well serviced.

There are, however, some bright spots in this dark picture. As a result of the call of the Polish Association of Developers, the Association of Financial Advisory Companies and the Polish Banks Association, the Polish Financial Supervision Authority partially withdrew from the rigorous safety buffer introduced in April 2022. Borrowers also hope for a lower loan price due to the conversion of WIBOR to WIRON. This can translate into a result of approx. 85 – 90 thousand new loans of the total value of approx. PLN 30 billion in 2023. Certainly, much depends on the situation beyond our eastern border and on the Polish government’s decisions on European funds for the implementation of the National Recovery Plan.

We entered an election year, so there are already government gifts to help citizens to get the own apartment. “Safe Loan 2%” promises to be a very attractive solution. The question is, how many people will ultimately benefit from it? Especially that it will be the most expensive housing support instrument (per beneficiary) in history. And as the experience with other government support instruments showed, the group of beneficiaries may turn out to be very limited. Let me remind you that when assessing the effectiveness of government ideas included in the Polish Deal a year ago, I estimated that in 2022 a maximum of 1 000 borrowers could get a housing loan without downpayment. The reality turned out to be even more brutal – only 329 borrowers took advantage of this solution. I was also sceptical about the attractiveness of the offer of building houses up to 70 square meters without a construction permit. According to data from the Ministry of Development and Technology, by December 2022, construction of only 1 058 houses up to 70 sqm was reported throughout the country.

Lack of consistency in the approach to the housing problem and lack of understanding the mechanisms operating on this market are evidenced by the latest government idea announced under the slogan of preventing speculative apartments purchases. The purchase of another (the discussion, which exactly, is still ongoing) apartment for rent is to be “punished” with an additional, higher tax on civil law transactions. As if we had an oversupply on the market of apartments for rent on one hand and on the other – as if families queued up for apartments from developers.

Is the worst of the mortgage market behind us? If the wages increase continues and the forecasts of cheaper loans come true, we may observe a gradual rebuilding of the creditworthiness of Poles. Let us remember the scale of still unsatisfied housing needs of our compatriots and the additional demand for apartments generated by our guests from Ukraine. High deficit of flats means that new flats will find buyers as soon as their availability improves. We are waiting for European funds, e.g. from the recovery fund, which will ensure a sense of employment stability that is crucial for consumers to make decisions about large expenses or incurring long-term liabilities.

Housing construction can and should be used, as in other countries, as one of the most effective flywheels of the economy. Therefore, it should be in the interest of the state to support both demand and supply on the housing market. We can definitely afford a higher scale of budget expenditures for this purpose than before. It just works for all of us. Latest analyses show that as much as 37% of the price paid to the developer when buying an apartment on the primary market goes to the state budget in form of different types of fees and taxes! Today, we have a unique opportunity to organize the mortgage lending market and convince borrowers to use fixed-rate loans, we have favourable conditions for launching a fixed-rate contract loan in the saving-building societies formula, and finally for the streamlining of the covered bond issue and trading process, which has been lagging for 25 years. There are many proven ways and mechanisms to speed up this flywheel of the economy, which housing construction can and should be. It would be enough for those responsible for Poland to want to implement them.

Jacek Furga,Ph.D.
Head of AMRON Centre

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