Archives: Raport Amron-SARFiN

After the last 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. 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, after eleven monthly decisions to increase the NBP interest rates, has maintained a stable NBP reference rate at the level of 6.75% since September. It resulted not only in slowing down the increase of WIBOR 3M index in November 2022 at the level of 7.60%, but led to its gradual decrease to the level of 6.90% at the end of first quarter. 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. All this factors make the creditworthiness increase, which was also confirmed by Housing Availability Index monitored by AMRON Centre. The average value of newly granted housing loans also increased after four quarters of declines.

The number of housing loans granted in the first quarter of 2023 accounted for 21 968, which was by 16.04% more than in the previous quarter and their value amounted to PLN 7.472 billion, which meant an increase by 21.14%. In comparison to the corresponding period of 2022, however, these results were lower nearly by half.

Will this recovery be more lasting and longer, or is it just a short rebound? In a moment, a new offer of loans with a variable rate based on WIRON index will be available, many potential borrowers are waiting for the government’s ‘Safe Loan 2%’, and others are counting on the first interest rate cut by the MPC. It can only get better.

The level of repayments of active housing loans was still higher than the new loans. In the period from January 1, 2022, the number of active housing loan agreements in Poland decreased by over 221 thousand to the level of 2 328 thousand, and total indebtedness of Polish households due to housing loans decreased by over PLN 25 billion and amounted to PLN 486 billion.

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 number of over 238 thousand new flats and single-family houses, in the first quarter this year has demonstrated investment reticence, understandable especially considering rapidly growing construction costs. In comparison to the first quarter of 2022, the number of started constructions decreased by 27.61%, and the number of dwellings with construction permits issued or construction design applications submitted was lower by 33.66%. The number of completed dwellings was slightly, by only 0.08%, higher than a year earlier.

In the first quarter of this year, after several periods of floating dynamics of changes, significant increases in average housing prices in the largest Polish cities were recorded. The highest increases were recorded in Cracow, Warsaw and Poznan – respectively by 5.95%, 4.38% and 4.12%, and in other agglomerations monitored by AMRON Centre – at the level of approximately 3.5%. One of the reasons for this increase in prices were the expectations of potential beneficiaries of the government’s ‘Safe Loan 2%’ programme. After the first announcements of this undoubtedly very attractive solution, the number of reservation agreements with developers increased significantly.

There is practically no trace of the two main factors that have influenced demand in the last few quarters (the demand from refugees from Ukraine and the demand ‘shifted’ from the housing market to the rental market after the interest rate increases). The first quarter of 2023 on the rental market brought a significant increase in the supply of apartments in most of the largest Polish cities. In the first quarter of 2023, the highest increase in rent rates in relation to the level recorded in the previous quarter was recorded in Katowice – 3.64%, but Warsaw recorded an increase by only 1.68% and Cracow – by 0.83%. In other analysed cities, average rents decreased by approximately 1.50%.

It is pleasant to observe the increase in lending in the first quarter of 2023, which improves the moods, especially among developers, who, apart from potential beneficiaries of the ‘Safe Loan 2%’ programme, can still count on cash investors and institutional rent companies (PRS). When it comes to forecasts for the housing loan market, it seems impossible to improve the result from the disastrous year 2022. Reaching the level of 100 thousand new loans with a total value of PLN 35 billion in 2023 will be a success.

Certainly, much depends on the situation beyond our eastern border, on the Polish government’s decisions on European funds for the implementation of the National Recovery Plan and pre-election ideas. As I mentioned, ‘Safe Loan 2%’ promises to be a very attractive solution. The question is, how many people will finally benefit from it. In the introduction to the previous AMRON-SARFIN Report, I mentioned the effectiveness of government ideas included in the Polish Deal. Only 329 borrowers took out a housing loan without a downpayment, and 1 058 individual investors started building a house without a permit. On May 16, 2023, the Minister of Economic Development and Technology announced that the most important housing programme of the current government ‘Flat Plus Programme’, which has been implemented since 2016, will be closed, but apparently the government is already preparing a surprise in this regard. It seems that we will face more surprising ideas, not consulted with the participants of the housing and financial markets.

Unfortunately, the pre-election atmosphere is not conducive to the systemic solutions for the housing loan market, but it could certainly be used to increase the supply of land for housing construction, for example by offering land owned by the State Treasury, state-owned companies or local governments, collected and recorded in the National Properties Resources under ‘Flat Plus Programme’. It should be in the interest of the government not only to spectacularly support demand, but above all to increase supply on the housing market. We can definitely afford a higher scale of budget for this purpose than before. It just pays off for all of us. The latest analyses showed that as much as 37% of the price paid to developer on primary market goes to the state budget in fees and taxes!

We are not waiting for another ‘housing surprise’ from the government. We are waiting for the possibility of a fair discussion, exchange of arguments and presentation of real numbers. Let’s take a chance on launching a fixed-rate contract loan in Poland as construction unions, or to finally unblock the process of issuing and trading in covered bonds, which has been inefficient for 25 years. We provide conclusions and arguments collected during the extremely interesting 19th Housing Finance Congress, which took place at the beginning of March this year with numerous representatives of banks, developers, insurance industry and academic sectors. Unfortunately, there were no government’s representatives of housing and finance departments. On May 16, 2023, Director Kamil Liberadzki from the Polish Financial Supervision Authority presented an interesting initiative regarding covered bonds in the presentation ‘Long-term financing of mortgage loans’.

Jacek Furga,Ph.D.
Head of AMRON Centre

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

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

The second quarter of 2022 brought a further tightening of banks’ lending policy with regard to housing loans. This is the result of both subsequent, already 9 increases in NBP interest rates, as well as implementation of Polish Financial Supervision Authority’s recommendations regarding increased safety buffer up to 5 percentage points in creditworthiness analysis process. By the way, extending this recommendation also to loans with a fixed interest rate seems to be a nonsense.

As a result of subsequent decisions of the Monetary Policy Council, the reference rate increased from 3.50% at the end of the first quarter to 6.00% at the end of the second quarter. That resulted in an increase in the 3M WIBOR ratio, one of the components of the mortgage price and, in consequence, also the average mortgage interest rate to 9.03%.

In consequence, in the second quarter of this year not only another decrease was recorded in the volume of new lending, but also, for the first time in AMRON Centre monitoring history, the number of newly granted loans turned out to be lower than the number of loans repaid in the same period. Dramatically rising interest rates on mortgage loans induces an increasing number of borrowers to early repayments. As of June 30 this year, the number of active housing loans fell to 2 483 539. This means a decrease by 2.55% in the second quarter of 2022, i.e. by 65.021 loans in nominal terms, compared to the balance at the end of the first quarter of 2022. The total debt of Polish households due to contracted housing loans also decreased.

In the second quarter of 2022, the number of newly granted housing loans amounted to 38 398, i.e. as much as 43.70% less than in the previous year. The value of newly granted mortgage loans amounted to PLN 13.536 billion and was lower by 38.85% than in the corresponding period of the previous year.

The average value of a housing loan in total stabilized at the level of approximately PLN 350 thousand.

Increased construction activity, especially in context of decreasing number of granted loans in the first half of 2022, might seem incomprehensible. Nevertheless, there was a clear recovery in the construction sector noted in the second quarter, comparing to the results from the first quarter of a year. The number of started constructions was higher by 24.65%, while the number of construction permits grew by 19.30%. Number of completed dwellings remained practically unchanged. Development sector achieved even better results, largely due to the amendment of the so-called Developer Act entering into force at the beginning of July. New regulation imposes another additional costs on developers – obligatory contributions to the Developer Guarantee Fund.

Unfortunately, compared to the second quarter of 2021, the number of started constructions decreased by 17.88%. It is true that there were increases in case of other two indicators, but their scale is confirmed by the fact that developers are lingering and waiting for further development on the mortgage loan market. As a result we will see lower supply of new flats in the coming quarters.

Second quarter of this year brought a further reduction in the number of concluded transactions – both on the primary and secondary market – and was accompanied by a significant diversification of the dynamics of average housing prices in particular locations. Further price increases recorded in some locations resulted from an increase in share of higher-priced apartments in decreasing number of concluded transactions. However, the dynamics of price growth did not exceed the level of inflation increase recorded by the Central Statistical Office, which for the second quarter of 2022 amounted to 5.8%. This meant further declines in average home prices in real terms. The highest increases in the average nominal price were recorded in Lodz and Wroclaw – by 4.78% and 4.77% respectively. On the other hand, prices in Warsaw and Poznan fell by 1.17% and 2.01% respectively. Still, in relation to the corresponding period of 2021, price increases are double-digit. The highest increases in the average price of flats were recorded in Wroclaw (by 14.67%) and in Lodz (14.25%), while the lowest were noted in Poznan (6.24%).

It is currently difficult to state, whether we are dealing with a change in the price trend in the largest Polish cities or the recorded drops in some locations result from changing structure of the market. Expectations of a drop in prices follow a significantly reduced demand due to increase in interest rates and tightening of lending policy related to the Polish Bank Supervision recommendation for banks. At the same time, the housing boom in recent years has launched many new investment projects powering supply side of the market, especially outside the largest cities, which in the current phase of the economic cycle is not conducive to maintaining price increases. A price correction is possible to the level of prices noted 2-3 quarters ago, even to the level from mid-2021. On the other hand, a strong increase in housing construction costs, which – as the demand is weakening – may not be transferred to housing prices, effects on lower profitability of new projects for developers, which will result in suspension of new investments and a reduction in supply in the next 2-3 years. This may slow down the scale of expected price correction.

Second quarter of the year also brought a slowdown in private rent rates upward trend in the largest Polish cities. A significant number of the refugees, who came to Poland after the outbreak of the war in Ukraine, returned to their home country or moved to other EU countries, what contributed to lowering the demand pressure on rent rates for flats in the largest Polish cities. Nevertheless, increases in the average rent rates for apartments were again observed in all surveyed locations. However, these increases were much lower than in the first quarter of this year.

The highest growth in relation to the level of rent rates recorded in the previous quarter was noted in Poznan – 5.57%. The average rent rate for a flat in Warsaw in the second quarter of 2022 amounted to PLN 2.087 and was higher than in the previous quarter by 2.20% (PLN 45).

The banking sector remains between the rock and a hard place. On one hand, the Monetary Policy Council each month takes decisions to raise the NBP interest rates, what results in WIBOR ratio increase in the, which in turn translates into more and more expensive costs of mortgage loans. On the other hand, not only the government, but also the opposition parties blame banks for increases in mortgage loans monthly instalments and, without any inhibitions, reject proposals for solutions to help borrowers repay their loans.

Costs generated by so called ‘credit holidays’ for banking sector may significantly weaken the banks’ offer in terms of granting new mortgage loans. Especially, when a mortgage loan granted for housing purposes, which for decades was treated as a safe long-term financial instrument constituting the basis for building a long-term positive relationship between the bank and the customer, has become a high-risk instrument due to successive unreasonable political decisions.

We are preparing for both local and parliamentary elections, which are to be held in 2023. Initial proposals of individual political parties on solving housing problems have already appeared. Unfortunately, they are not very impressive, while the housing problems are growing.

Certainly, the Polish Banks Association will join the discussion on the future of the housing market, proposing solutions and financial instruments verified over the years, ensuring incomparably more effective protection of citizens’ housing needs in neighbouring countries.

Jacek Furga,Ph.D.
Head of AMRON Centre

The narrative about the real estate market environment has definitely started to change. In last few reports, commenting events on mortgage and housing markets, we referred mostly to the impact of the coronavirus pandemic on recorded results. Today, because of war going on for three months in Ukraine, we have practically forgotten about the pandemic. Aggression of the Russian Federation on Ukraine on February 24 had a number of negative consequences for the housing construction sector, in particular in terms of workforce availability. A significant number of refugees from Ukraine has completely changed the situation on rental market, putting strong pressure on rent increases. Effects of the Russian Federation’s aggression are evident when it comes to numbers describing Polish housing market in the first quarter of 2022 and we will face them for following quarters.

In last few editions of the Report, we emphasized the impact of NBP interest rate cuts made in spring 2020 on record-breaking lending results in following quarters of 2020 and 2021. We were also warning that borrowers should take into account that low rates, contrary to NBP Governor assurances, may change. We also encouraged to take out loans with a periodically fixed interest rate. The surprise came in October 2021, after the first in 11 years decision of the Monetary Policy Council to raise the interest rates. In the first quarter of 2022, the Monetary Policy Council made subsequent increases on a monthly basis. As a result, at the end of the first quarter the reference rate increased to the level of 3.50%, what resulted in an increase of WIBOR 3M, one of the components of the mortgage loan price ratio, to 4.43% and the average mortgage interest rate to 6.70%. The impact of these changes on the credit market is clearly visible in our Report.

In the first quarter of this year the number of new housing loans amounted to 47 767, which was lower by 25.27% than in the previous quarter and by 16.45% than in the first quarter of 2021. The value of newly granted mortgage loans equalled to PLN 16.932 billion, which meant a decrease by 24.59% compared to the fourth quarter of last year and by 5.36% to the same period year ago.

The average value of a housing loan increased, by the force of inertia, to the level of PLN 351 251. Compared to the previous quarter the increase was slight, but in a one-year time horizon this increase amounted to 12.16%. In nominal terms it equalled to PLN 38 089.

Developers are also adapting to changing scale of demand on the housing market. In the first quarter of this year, they started construction of 31 675 flats, which was 17.40% less than in the previous quarter and 21.07% less than the year before. The number of apartments with building permits obtained by developers dropped by 4.70% in this period. The deepest decline was recorded in the category of completed dwellings, the number of which decreased in Q1 2022 by 33.95% in relation to the result noted in the previous quarter.

In most of the largest Polish cities, increases in the average transaction price of 1 sqm of usable floor space continued, however with a much slower dynamics. The highest increase in the average nominal price, by 2.70%, was recorded in Warsaw, where the average transaction price in the first quarter of 2022 accounted for PLN 11 382/ sqm. The first decrease among the largest Polish cities was also recorded. The average price in Gdansk decreased by 0.44%. It should be noted that in none of surveyed locations the average prices increase exceeded the level of 3%. Taking into account the level of inflation recorded in the first quarter of this year (3.80%) it means that in real terms, the average prices of 1 sqm of apartments decreased in all analysed locations. In relation to the corresponding period of 2021, the largest increases in average prices of apartments were recorded in Poznan (by 13.71%), Warsaw (12.99%) and Cracow (12.81%). The lowest increase, amounted to 8.36%, was recorded in Gdansk. Slowing prices dynamics is however visible in smaller provincial cities.

Inflow of refugees from Ukraine to Poland has fundamentally changed the situation on the rental market once again in the course of last few years. As a result, in March we recorded dynamic increases in apartment rent rates. At the moment, the situation stays dynamic and it is difficult even to imagine an equilibrium on the rental market. The market prospects, in particular prospects for maintaining current levels of rent rates, will depend both on development of the situation in Ukraine and possible refugees’ readiness to return home, as well as on the future potential absorption of a significant number of Ukrainian workers by the Polish labour market.

Increases in the average residential rent rates were noted in all analysed locations. In relation to the levels recorded in the previous quarter, the highest increase was recorded in Wroclaw – 10.18%. The average rent rate for a flat in Warsaw in the first quarter of 2022 amounted to PLN 2 042 and was higher than the one recorded quarter before by 8.27% (PLN 156).

In Centrum AMRON’s opinion, transaction prices per square meter will continue to grow this year, although at a much slower pace than in the period from 2018 to 2021. Price increases will result also from higher construction costs, caused among others by rapidly rising inflation.

Dynamically rising level of inflation and new tax rules under the Polish Order with its subsequent adjustments and changes, introduced uncertainty as to the future economic situation, as well as to the future income of potential borrowers and housing buyers. These factors, together with drastic increases in the interest rate on mortgage loans, resulted in a decline in the IDM3 Residential Availability Index, to the level noted in 2014.

The banking sector has once again founded itself between a rock and a hard place. On one hand, the Monetary Policy Council for eight consecutive months has decided to raise NBP interest rates, what resulted in increase in the WIBOR ratio and, in consequence, more expensive mortgage loans. On the other hand, the government, hand in hand with the opposition, puts the blame for increasing costs of mortgage loans on banks and uninhibitedly presents proposals, which are to to help borrowers repay their loans. Only Marek Suski, MP from the ruling party PiS, managed to speak frankly, stating: “Unfortunately, when you take out loans, you must pay them back.” I assume that he spoke in favour of approx. 20 million Poles, who participate in PPK pension scheme, are OFE members or directly holders of bank shares. All of them, as well as the whole economy, do care about the safe development of banks. In this context, it seems at least surprising when the Prime Minister and former president of one of the largest banks in Poland accuses banks of generating profits. After all, loan agreements contain relevant provisions, including repayment suspension periods in case of temporary problems with debt repayment. Since 2016, banks have been co-financing the Borrowers Support Fund established specially for such cases.

During the period of low interest rates, i.e. from May 2020 to September 2021, banks granted approx. 340 thousand new loans both for the purchase of apartments for the borrowers’ own needs and for investment purposes. During this period of low interest rates, banks, based on Recommendation S, used a buffer of 250-300 basis points when calculating creditworthiness. There is no need or justification for automatic input of the following solution for all, especially when so-called “credit holidays” will weaken payment discipline and torpedo anti-inflationary policy of the government and the NBP. Moreover, the “credit holidays” will bring only partial and temporary effect to the borrowers, limited to a short-term suspension of instalments at cost of extending the repayment period.

The solution proposed by the government is harmful, motivated by populism and above all – completely disproportionate, as the banking sector has repeatedly declared its readiness for working out a tool, allowing to support borrowers who actually need this support.

For years Polish Banks Association has consistently recommended implementation of solutions and financial instruments that in neighbouring countries ensure incomparably more effective way to meet the citizens’ housing needs. We are not only open to such discussion, but also systematically initiate it. Unfortunately, these initiatives rarely find fertile ground among decision-makers. It is a pity, because we would avoid wasting energy on solutions such as “Flat Plus” or recently launched “Flat without own contribution” programmes. According to the analyses of Centrum AMRON, the share of new loans with the LtV ratio higher than the level recommended by the Polish Financial Supervision Authority, i.e. 80%, fell from over 53% in 2013 to 26% in the first quarter of 2022. It is not a lack of the down-payment that is a problem and persuading those, who have not managed to collect even 10% of their own contribution, to take out a long-term loan of 100% of the property value is really a disservice. However, it seems that limits and restrictions to both eligible persons and premises, usually implemented in governmental programmes of this kind, will make this initiative successful if more than 1 000 borrowers will take advantage of it this year.

Of course, we will continue our efforts to popularize the fixed-rate loan, to launch a long-term savings system and a contract loan with a fixed rate in the formula of housing-saving banks (bausparkassen), and to finally outflow mortgage bonds emission and trade that has been ailing for 25 years. There are many proven ways and mechanisms to accelerate this economic flywheel, which can and should be housing construction.

Jacek Furga,Ph.D.
Head of AMRON Centre

Despite continuous state of a public health emergency linked to the COVID-19 pandemic, the year 2021 turned out to be a very good, or even record-breaking time for both mortgage lending sector and housing market. Number of completed housing units reached the record level of nearly 235 thousand of flats and houses. Such results of housing construction were noted in Poland in the 70s of the last century. The total value of newly granted mortgage loans was also impressive. The amount of over PLN 86 billion was the highest ever recorded in the history of mortgage lending in Poland. It was a good time for AMRON Centre, too. AMRON database grew by over 262 thousand of new records on transaction prices and values of real estate in the pandemic times and it exceeded the level of 3,85 million of information. It is a very good result considering that in 2021 Polish banks granted approx. 256 thousand of new mortgage loans.

The second pandemic year was the time of continuation, or rather boosting of trends observed before the pandemic. Number of loans granted in 2021 was higher by over 25% than a year before. By the end of the year, the average value of a newly granted loan reached the historic level of PLN 350 thousand.

The series of NBP’s interest rates cuts decided by Monetary Policy Council already in 2020 were not without significance for such high level of mortgage lending, as it resulted with historically low interest rates on commercial loans. Together with dynamically growing inflation, low interest rates undermined the reasonability and profitability of savings on banks deposits. It may be stated that Monetary Policy Council with its decisions send Poles on shopping on housing market. Especially considering that President of National Bank of Poland has been consequently assuring the public that interest rates in Poland would be stabile for at least several following months. In the effect, at the end of 2021 the total number of active mortgage loans reached the level of 2 549 thousand and total mortgage debt of Polish households amounted to PLN 511.3 billion.

Last quarter unpleasantly surprised, particularly the group of approx. 340 thousand of fresh borrowers, who took out their mortgage loans in the period from Q2 2020 to Q3 2021.  At the end of 2020 the average cost of a mortgage loan accounted for 2.49%, but at the end of 2021 it was already 4.7%, which meant an increase in a monthly instalment of an average loan for PLN 330 thousand by approx. PLN 600. What is more, three decisions of Monetary Policy Council on central bank interest rates increases, taken in October, November and December 2021, were not the last ones. We have warned against such scenarios, when we published previous editions of the Report. Fortunately this was not a disaster. Taking the decisions on granting loans, banks were obliged to analyse the creditworthiness of potential borrowers in accordance with Financial Supervisory Authority recommendations, which included the scenarios of interest rates increase by 200 – 250 basis points.

Changes to the housing market environment, including most of all several increases in central bank rates in Q4 2021, high inflation and uncertain political situation did not affect its stability. AMRON Centre’s data confirm further increases in housing prices on most of the biggest Polish markets in Q4 2021. The greatest increases were observed on Warsaw and Wroclaw markets, where growths reached the level of respectively 3.20% and 3.34% compared to values noted a quarter before. In relation to the same period of last year, the greatest increases in the average price of  housing unit were recorded in Cracow – 15.85%, Wroclaw – 13.42% and Gdansk – 13.14%. The price growth in Warsaw was the lowest among the biggest Polish markets and it was equal to 9.93%.

In 2018, the nominal price of 1 square meter of a housing unit in particular cities overcame the psychological barrier determined by maximum prices noted at the peak of previous business cycle at the first half of 2008. At present, in the biggest surveyed cities the level of nominal prices is higher by 26.31% in Warsaw up to 47.87% in Gdansk, comparing to prices from 2008. But after taking into account the inflation, it turns out that in most of surveyed cities the real levels of prices are still significantly lower than in 2008.

Segment of flats for rent proved to be much more susceptible to turbulences deriving from the effects of pandemic. Q4, 2021 was the third quarter in a row, when levels of private market rent rates were increasing in all surveyed cities, moving towards to the levels recorded before the pandemic. After a period of pandemic turmoil, the market has found a balance. In most of the cities, rent rates returned to the pre-pandemic levels. In a yearly perspective, the greatest dynamics was recorded in Cracow (by 15.42%) and in Warsaw (by 13.23%). At the same time, the lowest rent rates increase was observed in Poznan (by 4.45 %).

Will the year 2022 be the time of continuation of current trends? Forecasting is difficult in current economic situation in Poland, with inflation exceeding 9%, increasing central bank interest rates and just implemented Polish Deal programme, which definitively will affect the creditworthiness of Polish borrowers. Against this economic background and in face of uncertainties related to war in Ukraine and possible implications of that conflict, also of economic nature, possible perturbations related to new, fortunately less and less aggressive versions of the COVID-19 virus, become of secondary importance.

Increase in prices of consumer goods, food in particular, but also media, make increasing prices of housing not so much incomprehensible and the need to invest savings in real estate is still observable. On the other hand, changes in income tax rules implemented within the Polish Deal programme imply the uncertainty on actual incomes, when actual incomes translate into demand on housing market. Changes in taxation will limit the net incomes of those, who earn the most, i.e. those, who usually invest in flats for rent. That may result in decrease in housing demand in that group.

Housing programmes designed as a part of Polish deal will not have a significant impact on development of Polish housing market and even smaller influence on increase in mortgage lending. Limitations and restrictions, typical for successive governmental housing programmes, including limited budget funds reserved for those programmes, will translate into maximum 1 thousand of borrowers with no down-payment. On the other hand, changes in taxation of rent incomes that introduce obligatory tax on registered income (tax calculated without deducting tax-deductible costs) will affect mainly tenants. Transitional provisions provide for keeping the other taxation rules in 2022 only by those, who used them before. Unfortunately, one should have no illusions – owners of flats for rent will not assume the entire additional costs. At least part of them will be transferred to tenants.

It is also hard to expect the great interest in building houses up to 70 sqm with no construction permit. Simplified procedure allows to shorten the period related to construction formalities and to limit the investment costs by several thousand zlotys. It is however not at all certain, whether Poles will start constructions based on new legislation on a mass scale. Previously introduces possibility to construct a house up to 35 sqm with no construction permit did not turned out to be a very popular solution.

It must be remembered that Poland, compared to other European countries, is still ranked the last or the last-but-one in terms of meeting the housing needs of its citizens. There is still high housing deficit in Poland, which means that new housing units will find buyers. Sales of flats in 2022 will be derived from the available offer on primary and secondary markets. We are still waiting for European funds, among others from the reconstruction fund, which shall assure the stability of employment, crucial for consumers when taking decisions on huge spendings or long-term liabilities.

The most probable scenarios for the nearest months on housing market include further increases in prices of flats, houses and plots of land, but with visible slowdown by at least half of the increase noted in 2021, with simultaneously weakening demand already announced by visible decrease in number of new mortgage loan applications recorded at the end of 2021. Negative real interest rates still remain important factor influencing further housing demand, as they still make investing in real estate profitable.

Indicators, which will slow the increasing trend on mortgage lending market, are:

• expected further increases in central bank interest rates, which will translate into increase in mortgage loans costs;
• probable tightening the mortgage lending criteria by banks;
• worsening housing availability accompanied by housing prices increases faster than increases in households’ incomes;
• uncertain stability of the borrowers’ revenues in face of constant changes in rules introduced by the Polish Deal programme.

In the second decade of the twenty-first century, after the subprime crisis, AMRON Centre defined a so-called “organic annual level of mortgage lending in Poland” accounting to 180 thousand of new mortgage loans of a total value amounting to approx. PLN 40 billion. If the mortgage market stabilises in the following years, the new “organic annual level” will be the number of approx. 200 thousand of new loans of a total value of approx. PLN 65-70 billion.

For many years, Polish Banks Association has been recommending launching in Poland financial solutions and instruments that in neighbouring countries allow to satisfy the citizens’ housing needs in far more effective way. Systemic, long-term and common means are necessary. We must understand the sense of common effort and accept the fact that public funds are involved in solving housing needs of the society. In our all interest. But these actions must be effective, constructive and strengthening the trust to the State and the community.

National housing programmes appeared in many countries as a remedies for overcoming the economic crises. We presently face the unique opportunity to bring order to the mortgage lending market and to convince the borrowers to the fixed-rate mortgage loans, as well as to launch the system of a contract fixed-rate loan in the formula of saving-building banks (bausparkassen) or last but not least – to finally outflow the process of mortgage bonds emission and trade, which has been ailing for last 25 years. There are many ways to fuel the development of housing construction, which should and might be a driving force for the Polish economy. If only those, who are responsible for Poland’s development, would be interested to do so.

Efficient system of financing the housing construction is the only basis for the success. Since Poland’s accession to European Union in May, 2004, the only effective and sustainable instrument that guarantees the housing construction development is the  mortgage loan, including the loan denominated to Swiss francs, which enabled almost 3 million of housing investments.

Housing policy of the government should assure the availability of flats for rent, but it must not impose that option. Inspiring and supporting the property ownership aspirations is in the best interest of both the national economy and the prosperity of particular citizens. In highly developed economies, housing ownership is a very significant element of the pension system.

Jacek Furga,Ph.D.
Head of AMRON Centre

Although the third quarter of 2021 was a time of tightening of the lending policy criteria by some banks related most of all to amended Recommendation S provisions, the dynamic trend of lending growth observed in the previous quarters did not slow down. At the end of the third quarter of this year, the number of active housing loan agreements in Poland reached the level of 2 538 814, and the value of the active housing loan portfolio exceeded the barrier of PLN 500 billion for the first time. During this period, 68 353 housing loans were granted, which is 2.00% more than in the previous quarter and as much as 40.12% more than in the corresponding period of 2020. Quarterly value of newly granted loans in the total amount of PLN 23.229 billion turned out to be record-breaking. It meant an increase by 4.94% compared to the second quarter of this year and by as much as 64.27% compared to the same period last year. It was also caused by the fact that the average value of a mortgage loan increased by 17.24%  in the last quarter, reaching the value of almost PLN 340 thousand.

Low reference rate, persisting in the third quarter at the level of 0.1%, encouraged to reach for a cheap mortgage loan, and the rising inflation encouraged to invest savings in real estate.

Dynamic increases in transaction prices continued. The average transaction price in Warsaw at the end of the third quarter of 2021 was PLN 10 738/sqm and was higher by 5.03% compared to the value recorded in the previous quarter and by 12.23% compared to the corresponding period of 2020. Price increases in other monitored locations ranged from 4% to almost 8% per quarter and from 8% to almost 14% per annum.

The third quarter of this year brought a clear change of the downward trend in rent rates that has lasted for a year in all surveyed locations. Compared to the average rents recorded in the second quarter of 2021, the highest increases were noted in Warsaw and Cracow – respectively by 8.54% and 8.22%. Perspectives of further changes  in the coming quarters depend on potential restrictions that may be introduced by the government in connection with the already raging fourth wave of the pandemic.

It is also difficult to estimate potential impact of the solutions introduced by the government as part of the Polish Deal programme, both on rent and mortgage lending markets. One thing is certain: these solutions will not support the slowdown of housing prices increase. The possibility of building detached houses without either a permit or any control will contribute to further increases in prices of land and building materials. The state guarantee of the own contribution for potential borrowers may – as estimated by the government – increase the number of mortgage borrowers by 80 000 annually. I do not believe in such numbers, but  growth in demand for decreasing number of housing investments newly launched by developers can have only one effect. Further prices increase.

Developers, complaining about more and difficult access to new land for investments, in last quarter started by 15.15% less constructions than a quarter earlier. The number of apartments under construction was practically at the previous year’s level. At the same time, the number of construction permits obtained by developers was by 8.20% lower than in the previous quarter, although it was by 17.85% higher than in the previous year.

After three past quarters, the forecasts regarding the record mortgage lending results in the whole 2021 appear to be reasonable. The total value of over PLN 192 thousand loans granted in this period exceeded PLN 63.3 billion, which already is the highest result in history. The last quarter of 2021 is still ahead of us. It will depend on future decisions of the Monetary Policy Council if we, as a banking sector, exceed the level of 250 thousand granted loans at the end of 2021, but exceeding the level of PLN 80 billion for the new portfolio of housing loans seems to be certain.

Jacek Furga,Ph.D.
Head of AMRON Centre

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

Despite ongoing pandemic threat, in the first quarter of 2021 both residential and credit markets remained in an upward trend. The average value of a housing loan rose dynamically as well. After a historic record noted at the end of 2020 at the level of 305 thousand, the first quarter of the current year brought further increase to PLN 313 thousand. Observed increases resulted from the factors that we defined after a short “covid” shock in the second quarter of 2020 – historically cheap mortgage loans and lack of an alternative way to invest capital. Therefore, flats are bought both by those who can afford a loan and by those who have significant savings. Rapidly rising inflation level is a new, though expected factor, shaping the situation in the housing market environment. On one hand it will certainly stimulate the demand for real estate and, indirectly, for mortgage loans, on the other, it may bring the prospect of an increase in interest rates by the Monetary Policy Council, which could significantly affect the situation on the housing market.

The number of housing loans granted in the first quarter of 2021 amounted to 57 172, i.e. 6.35% more than in the previous quarter. The value of newly granted mortgage loans amounted to PLN 17.942 billion, which meant an increase by 9.17% in relation to the result from the fourth quarter of the last year. Even compared to the very good, “pre-pandemic” first quarter of 2020 year, these values ​​turned out to be higher, respectively by 1.27% (number of loans granted) and by 7.93% (their value).

For the first time in history, the total amount of housing loan debt exceeded the level of PLN 480 billion and the banking sector’s loan portfolio currently includes nearly 2.5 million housing loans. It should be also emphasized that the quality of housing loans portfolio remains stable, with share of non-performing loans at the level of 2.54%,  i.e. unchanged both in relation to the previous quarter and situation before the pandemic. However, systematic deteriorating quality of Swiss franc loans (4.67%) with improving Polish zloty portfolio (2.02%) can be observed at the same time.

Despite further loosening of banking requirements and a systematic increase in the average value of a housing loan, the share of loans with a LtV ratio exceeding 80% has been consistently declining for a year. This means that housing purchasers applying for a loan have their contribution higher than 20% required by Recommendation S. The share of loans with LtV higher than 80% in the first quarter of 2021 was equal to 31.17%, which in relation to the first quarter of 2020 means a decrease by 9.90 pp.

The share of the Warsaw market in the volume of granted loans recorded a dynamic annual growth. In the first quarter of 2021, this percentage was as high as 53.29%, i.e. higher by 14.10 pp., at the cost of a decrease by 5.51% pp. of the share of smaller towns.

Investors in the residential market remained active. After the record-breaking year 2020, Central Statistical Office indicators for the first quarter of 2021 show a significant increases (in relation to the first quarter of 2020) in the number of started construction projects (by 21.19%), the number of construction permits obtained (by 41.95%) and the number of apartments handed over for use (by 7.41%).

Average transaction prices of 1 sqm of usable floor space also continued to increase in most of examined locations. The highest increase, amounting to 5.37%, was recorded in Cracow. Average price increases exceeding 3% occurred in Katowice agglomeration, Wroclaw, Gdansk and Lodz. On the other hand, in Warsaw, the average price of 1 sqm in the first quarter of 2021 was PLN 10 073per sqm and was slightly lower (by – 0.08%)  than in the previous quarter. However, in relation to the corresponding period of 2020, it meant an increase by 9.16%, with significantly higher price increases in Katowice agglomeration and Gdansk – by 11.64% and 10.51%, respectively.

The decline in rents on the private rental market that had been observed for the past three quarters also continued, although its slight slowdown was noticeable. The deepest decline was recorded in Lodz – by 2.45% compared to the level recorded a quarter earlier. Declines in other locations did not exceed 1 pp. We will probably have to wait for the improvement of the situation and a possible reversal of the downward trend in rents until the third quarter of this year, when students are about to return to universities, provided of course that in the meantime the fourth wave of the pandemic does not start in Poland. That could postpone the return to regular classes again.

In AMRON Centre’s opinion, transaction prices per square meter will continue to grow this year, although at a much slower pace than in the period from 2018 to 2020. Price increases will also result from higher construction costs caused by rapidly rising inflation. On the other hand, the decline in rents will be halted and they will stabilize at the level adjusted in recent quarters. Banks’ ability to continue lending may prove to be a potential slowdown factor in view of rising operating costs, as well as still unclear perspective of the “franc borrowers” behaviour and the continuation of the current adjudication line by the courts.

To ensure effective meeting of Polish society’s housing needs, Polish Bank Association has consistently recommended the implementation of solutions and financial instruments positively verified in neighbouring countries. Systematic, long-term and universal solutions are indispensable. Such solutions should be the result of a certain social contract.

Prime Minister Mateusz Morawiecki described the Polish Deal programme announced by the government coalition as the new social contract. The very idea of ​​including housing construction as one of the pillars in the Polish Deal is worth of recognition. It is in times of economic crises that housing programmes have emerged in many countries as a way to overcome such crises. It is a pity that the world-proven financial instruments and effective vehicles for supporting and inspiring citizens’ aspirations for housing ownership were not used here. This is, in fact, the way to build a middle class of the society. In developed economies, housing ownership is the basis for further economic activity of citizens and an important element of retirement pension insurance. But you have to grow up for housing ownership, as own apartment is not only a right, but also a lot of duties and responsibilities.

The preliminary assessment of the presented directions of the government’s activities shows that, at least in the housing area, we were not really interested in such a social contract. It is difficult to assess their attractiveness a few days after the announcement of the assumptions and pillars of Polish Deal, especially for people dreaming of their own flat. After the state’s failure to build cheap apartments for rent under the Flat Plus programme, the new concept assumes that this task will be transferred to the interested parties themselves – both by encouraging them to build mini-houses on their own (without any permits or any control) and by purchasing apartments from developers for money from a housing loan, with no own contribution, but with a government guarantee. In my opinion, these proposals will not dampen the aroused appetite for buying a flat, and may even strengthen them as  result of fear from further increases in housing prices, which may effect from these solutions. On the other hand, a possible wave of lawless constructions may do much more harm than good.

But, of course, we will join the discussion on the specification of these proposals and we will continue our efforts to launch a fixed-rate loan, to launch a fixed-rate contract loan in the formula of building-saving banks, and finally to clear the process of issuing and trading covered bonds that has been limping for 22 years. There are many proven ways and mechanisms to accelerate this flywheel of the economy, which can and should be housing. 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

Despite the pandemic threat, the year 2020 turned out to be a good, or even very good year both for the mortgage loan sector and the housing market. The record number of completed flats and single-family houses reached 222 000 units. Such results were achieved by housing construction in the seventies of the last century! Total value of mortgage loans granted in this pandemic year was also impressive. With total amount exceeding PLN 60 billion, banking sector achieved the second lending result in the post-transformation period. It was also a good year for the AMRON Center. During the pandemic period, AMRON database grew by over 212 thousand new records on transaction prices and property valuations, exceeding the level of 3.5 million records in total. This is a very good result, especially  taking into account that in 2020 banks granted over 204 thousand mortgage loans.

The first shock caused by the pandemic brought a sharp decline in demand for housing loans observed between March and May, but a gradual recovery started already in August. After tightening the terms of granting housing loans in the first months of the pandemic, in a second half of the year banks began to ease their lending policy criteria. In comparison to 2019, the number of applications for a housing loan submitted in 2020 decreased by only 0.6% and the number of granted loans was lower by 9.3%. It is worth emphasizing that this type of loan recorded the lowest decrease in demand compared to all loan products. At the end of the year, the average value of a granted mortgage loan reached a historic record level of PLN 305 thousand.

One of the most important factors determining such high lending results was a series of National Bank of Poland interest rates cuts, introduced by the Monetary Policy Council on March 18 (to 1.0%), April 9 (to 0.5%) and May 29 (to 0.1%). Combined with still disturbing level of inflation and money reprinting announcements that limit the confidence in its future value, such low interest rates questioned the profitability and reasonability of saving money on bank deposits. Therefore, it can be said that the Monetary Policy Council, with its decisions, sent Poles for shopping, including, and perhaps most of all, for purchases on the real estate market. At the end of 2020, total number of active housing loans reached the level of 2 472 thousand and the total debt on this account amounted to PLN 476.3 billion.

The year 2020 brought a dynamic increase in share of housing loans granted in the largest Polish agglomerations. At the end of the year it amounted to 73.46% and was higher than in the previous quarter by as much as 6.31 p.p. The share of Warsaw market in the structure of all newly granted loans in Poland in geographical terms reached a record level of 49.44%. Compared to the corresponding period of 2019, Warsaw’s share in the mortgage loan market was higher by as much as 10.46%.

At the end of 2020, the average mortgage loan margin accounted for 2.28%, i.e. by  0.18 p.p. higher than at the end of 2019. As a result of a significant reduction in interest rates by the Monetary Policy Council, the average interest rate of a mortgage loan at the end of 2020 was equal to 2.49%, i.e. it was lower by 1.33 p.p. compared to the end of 2019.

Despite the second wave of the COVID-19 pandemic and related restrictions, as well as pessimistic information from the rental market, housing markets in the largest Polish cities remained stable. The situation in the fourth quarter of 2020 was shaped by the same factors as in previous periods, which include first of all cheap mortgage loans, no alternative means of money investing and high price availability of apartments. However, the AMRON Centre data show that the fourth quarter of 2020 brought a clear decrease in the dynamics of price increases in most of the analyzed markets. In case of five of them (Katowice agglomeration, Wroclaw, Gdansk, Poznan and Lodz), change in the average price per square meter of a flat did not exceed one percent.  Warsaw was the leader in terms of price increase – an average price per a square meter of a flat in Q4 2020 was PLN 10 081 i.e. by 5.36% higher than recorded a quarter earlier. The largest decrease in the average price, by 1.44%, was recorded in Cracow (to the level of PLN 8,015). Compared to the numbers recorded at the end of 2019, the largest increases in the average price of flats were recorded in the Katowice agglomeration and Lodz – by 15.52% and 12.19%, respectively. In Warsaw, the average price rose by 11.75%.

If any segment of the real estate market has suffered from the coronavirus pandemic, it certainly was the segment of apartments for rent. A year ago, the expected return on rent exceeded 6% annually. Today, the level of 3% seems to be satisfactory. Introduction of remote classes at universities and remote work by a large number of companies,  restrictions in tourist traffic and – as a consequence – decrease in demand for short-term rent are the most important factors that determined the rent rates reductions. Decreases started already in the second quarter of 2020 year, deepened in the third quarter and slowed down at the end of 2020. The fourth quarter of 2020 brought reductions in private rent rates in all analysed cities. The average rent for a flat in Warsaw in the fourth quarter of 2020 amounted to PLN 1 666 and was lower than in the previous quarter by 2.83%. The deepest decline was recorded in Cracow and Gdansk. In Gdansk, the decrease in the average rent accounted for 4.34%, while in Cracow – 4.95%. Cracow market seems to be the most affected by the difficult situation on the rental market. This is because of the very high number of absent students, as well as the large number of flats available as short-term tourist accommodation. In annual terms, the decrease in the average rent in Cracow amounted to 16.05%.

Will 2021 be a period of continuation of the current trends? Forecasting for 2021 are of course extremely difficult. Any forecasting attempt should be taken with great reserve, as there are so many variables that can affect the market make.

In AMRON Centre’s opinion, transaction prices per square meter will continue to grow this year, although at a much slower pace than in 2018-2019 years. The price increases will also result from higher construction costs, caused among others by the new energy efficiency requirements for buildings. In addition, supply will be under pressure due to still difficult situation on the building land market. On the other hand, rents will stabilize at a lower level, adjusted in the last quarter of 2020.

The housing market remains instable. Poland is still on the last or one before last place in EU countries rankings of satisfying citizens’ housing needs. High deficit of flats is still a fact, which means that new flats will find buyers. The sale of apartments in 2021 will depend on the offer on the primary and secondary markets. Low interest rates – following the assurances of the President of the NBP to keep them unchanged in the following year – will continue to be an important factor stimulating the demand for flats. We all expect a COVID-19 vaccine that will allow us to return to normal life. We are also waiting for the inflow of European funds, including sources from the reconstruction fund, which will ensure a sense of employment stability, crucial for consumers making decisions about large expenses or incurring long-term liabilities.

On the other hand, worsening situation of banks in Poland may be a threat to mortgage lending. Banks will not be able to cope with it by themselves, as they have no influence on two the most important ones. The first is possible deterioration of repayment quality of loans granted in previous periods, caused by economy freezing, which may result in e.g. lower wages and sometimes job losses for borrowers. The labour market, however, may also revive in the event of a possible dynamic growth in the second half of 2021. The second threat, much more dangerous in terms of banks’ financial burdens, is related with possible  intensification of the Swiss franc borrowers claims and continuation of the current line of adjudication by the courts in this matter.

For years, Polish Banks Association has consistently recommended the implementation of solutions and financial instruments that ensure incomparably more effective meeting the citizens’ housing needs in neighbouring countries. Systematic, long-term and universal solutions are indispensable. In our common interest we must understand the sense of collective effort and accept the commitment of public funds to meet housing needs. But these must be effective measures that build and strengthen confidence in the state and community.

The government’s housing policy should ensure the availability of rental housing, but should not impose such an option. It is in the interest of the economy, but also in building the well-being of citizens, to inspire and support the pursuit of housing ownership. In developed economies, housing ownership is an important element of retirement benefits.

In the middle of last year, Polish Banks Association together with the Entrepreneurship Council, addressed Prime Minister Jarosław Gowin with a wide range of necessary activities that should be implemented. In the Entrepreneurship Council’s opinion, such long-term and systemic solutions will allow to improve the housing situation of Polish families and to use the housing development program both as a way to overcome the pandemic crisis, as well as one of the pillars of sustainable development and economic recovery in our country.

In many countries, national housing programs appeared as a way to overcome economic crises. At the moment in Poland it would be additionally favoured by low interest rates. This is a good time to launch a fixed-rate loan, to launch a fixed-rate contract loan in the formula of building savings banks and finally to improve the lame process of issuing and trading in mortgage bonds. There are many proven ways and mechanisms to accelerate this economic flywheel, which the housing construction can and should be. It is enough for persons responsible for Poland to have a will to implement them.

The basis for success can only be an efficient system of financing housing construction. Since Poland’s accession to the European Union in May 2004, the only permanent and effective instrument guaranteeing the development of housing construction is a bank mortgage loan, including a Swiss franc loan, which enabled the implementation of nearly 3 million housing investments.

Jacek Furga,Ph.D.
Head of AMRON Centre