06/03/2023 by Jakub 0 Comments
Mortgage market report - 2022
The time has come to summarize the situation in the mortgage market in the previous year, and to outline the developments that will be affecting the current year.
2022 was yet another challenging period, however, looking at the challenges people in other countries had and still have to face, we appreciate the obstacles we are dealing with and wish for peace and safety to all.
THE INTEREST RATE IN POLAND.
After starting the rate-hike cycle in October 2021, the National Monetary Policy Council has been raising the rate for most of last year, reacting to dynamically growing inflation. Starting at 2,75% in February, the reference rate rose to 6,75% by September, taking WIBOR3M to 7,61%.
Since then, due to increasing signals of the inflation trend reversing, the MPC has been deciding to keep the rate at the same level. Currently, the market predicts that the interest rate should start going down at the end of this year, or the beginning of the next one. Such prediction would also align with statements from the MPC members throughout the year.
2022 brought another development to the interest rate subject. The parliament has passed a bill changing the credit rate indicator from WIBOR to WIRON. WIRON is based on the rate of previous daily transactions between the banks, while WIBOR is looking forward. Due to that, WIRON is currently circa 1% lower than WIBOR, but it will decrease slower than WIBOR once the reference rate starts going down.
However, a crucial part of the bill passed is the schedule for implementing the changes. Officially, the WIBOR will not be published anymore at the beginning of 2025, so until then banks can use it for ongoing mortgages unless they are ready to use WIRON earlier. For now, we can see preparations at banks have already started, but we cannot provide binding dates. As usual, we will keep our customers updated.
CREDITABILITY IN 2022 AND 2023.
The interest rate growth had a decisive effect on the creditability of mortgage applicants. Let's look at it based on a model customer, a married couple with one child, earning together 10 thousand PLN net per month with unlimited working contracts, not having any credit liabilities, and planning to take a mortgage for 25 years. At the beginning of the year when the mortgage interest rate was at around 4%, such a couple could apply for up to 800 thousand PLN of credit, while now they could apply for up to 500 thousand PLN.
Creditability went down not only due to raising interest rates but also due to stricter policies imposed on banks by the Financial Supervision Committee (KNF). Last year KNF decided to tighten the rules behind calculating creditworthiness by lowering the maximum DTI ratio (debt-to-income) to 50%, raising the potential WIBOR level banks must take into account when looking at customers' income, as well as obliging banks to calculate creditability for 25 years period, even if customer applies for 30 years mortgage. These moves, as per KNF statements, were to ensure the stability of the sector.
However, noticing that the mortgage market remains healthy and the risks are fading away, this month KNF announced that banks can use lower future WIBOR for the creditworthiness calculations, which resulted in around a 25% growth of maximum creditability, and can be considered as a first signal of the situation going back to normal.
NEW TREND ON THE MARKET - REFINANCING OF THE MORTGAGE.
The high interest rates have resulted in a new trend expanding on the market. In the past, when the WIBOR was more or less steadily going down, the banks' margin grew or was kept flat. In the new situation of the growing WIBOR, the banks have started to lower their margin. As a result, an opportunity to lock a lower margin for the whole loan period had shown for mortgage owners, and many took it. As WIBOR peaked, and with most probability will start going down soon, we believe this window of opportunity might be closing.
Moreover, several mortgage owners have decided to lock the interest rate on their credit for five years, often by switching banks to another offering a better fixed rate. As this trend was almost nonexistent until now, the market did not develop tools yet to track the number of refinancing deals. However, when it comes to our customer base - around 50-60% decided to switch banks for savings or safety, and many new customers came to us with their already-owned mortgages to get assistance with the transfer. However, not all have been accepted to switch due to the lower creditability issue explained above.
Now, as interest was locked on many mortgages, once the interest rate will start to go down, we expect another wave of mortgage refinancing, this time from fixed to a possibly cheaper variable.
VALUE OF MORTGAGE GRANTED IN 2022.
After the record-breaking 2021, 2022 brought a significant correction in the mortgage market. The uncertainty, high interest rates, and low creditability resulted in a drop of 49,1% when it comes to the value of mortgages granted in 2022 compared to the previous year, translating to 45,4 billion PLN as the total value for 2022.
At the same time, as per the Credit Information Bureau (BIK) - "Contrary to fears from the beginning of 2022, there was no significant deterioration in the quality of the loan portfolio".
GOVERNMENT'S ACTIVITY ON THE MORTGAGE MARKET.
2022 has been a year of higher governmental activity in the mortgage market. Several programs have been started or announced - let's analyze them one by one.
PAYMENT HOLIDAYS. Due to raising the interest rate, directly affecting mortgage owners, the government announced the possibility for anyone with a mortgage to halt their payments, for four months in 2022 (2 months per quarter starting in August), and four months in 2023 (1 month per quarter). At the same time, banks could not count interest rates for the period of the holiday, making the program beneficial enough to be requested on above 1 million active mortgage agreements (around 50% of the total portfolio). There are plans to prolong the program in 2024, but this time with more restrictions regarding availability.
MORTGAGE WITHOUT UPFRONT. Another program announced last year made it possible to take a mortgage without offering any upfront to the bank - instead governmental bank was offering a guarantee. However, due to multiple mistakes in the program's structure, it was used in only 296 mortgages in the whole year (out of the total of 125 thousand granted in 2022). For example, the maximum price per square meter of the mortgaged property was unrealistically low - in Kraków a price limit for the newly built apartment was 9 thousand per m2, making only 2% of the properties on the market eligible for the program.
MORTGAGE WITH GUARANTEED INTEREST RATE. This year government is planning another program, possibly to start in July. It is directed only to those who are buying their first property. Based on the announcements, the government will guarantee a mortgage interest rate of 2%. However, the 2% seems to apply only to the interest rate the bank charges on top of the bank's margin, and it is not clear yet what margin banks will apply to these supported mortgages. As we do not know the exact shape of the scheme, nor can we be sure if it starts at all, you will need to keep an eye on our page for further information.
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