In five months alone, the Monetary Policy Council has raised interest rates five times. After a period of extremely cheap loans, bank loans are getting more expensive every month. In turn, this means that we can borrow much less in real terms than we could a year ago. This is not the end of the story, however, as the central bank is already declaring further increases in lending rates. So it may soon turn out that housing is already a luxury good.
Ability “to get rich”
Since 2105, Poland’s benchmark interest rate has been the lowest on record. At that time, access to credit was much easier, and the real estate market was experiencing a significant recovery. Consumers’ creditworthiness was high enough that most families earning two national averages could easily afford to take out a multi-year commitment to buy an apartment in a major city or build a house just outside it.
The pandemic period, or more precisely the economic uncertainty and the impending slowdown in the global and Polish markets, forced central banks to act, and they began a series of interest rate cuts to boost demand. In the case of Poland, the Monetary Policy Council decided to slide rates practically to zero, a state of affairs that lasted nearly a year and a half, or until October 2021.
During this time, access to money was extremely easy, and the loans themselves had interest rates that shot creditworthiness to record levels. As is not hard to guess, the availability of larger sums of money by more consumers led to sizable – de facto successive – increases in the real estate market, and so the value of loans rose like wildfire during this time. As indicated by the Credit Information Bureau, the average value of a home loan in 2021 is already 330 thousand zlotys, which is about 10 percent more than the year before.
Low interest rates encouraged Poles to take out loans, but for many it was the only way to finance the purchase of more expensive real estate. Pessimistic analysts saw this as a bubble, which in fact can be read as a kind of growth blowout. However, we will have to wait for the possible negative effects of these moves until the MPC completes the cycle of increases and inflation stabilizes at a certain level.
Loans get more expensive, capacity melts down
As we wrote above, the first increases in lending rates took place back in the autumn of 2021, after the National Bank of Poland, by the hands of members of the Monetary Policy Council, raised interest rates – signally – by 40 bps to 0.5 percent. This move, however, was not too painful for most borrowers, and the average mortgage installment usually twitched by only a few dozen zlotys.
The next rate hike, however, came just a month later, with the MPC deciding to intervene more forcefully due to already galloping inflation. In November 2021, interest rates jumped another 75 bps to 1.25 on the benchmark, which had already raised lending rates quite sharply, thereby increasing the value of the monthly loan installment and beginning to affect the creditworthiness of Poles.
Assuming that the installment increased by PLN 200, and that’s more or less how much began to evaporate from the pockets of the model mortgage borrower even before the December increase, it was by that PLN 200 per month that he lost his creditworthiness. Significantly, the real estate market has not slowed down for a moment, and the prices of new apartments continue to rise to this day.
The next meeting of the Monetary Policy Council took place at the beginning of December last year, which also resulted in a further increase in interest rates and, consequently, a further outflow of funds from the pockets of loan holders and a loss of capacity for both them and future borrowers.
More than 100,000 less in a few months
January and February of the new year were also not months in which the Monetary Policy Council would take pity on average Kowalski’s, as after two meetings of Council members, the aggregate reference rate once again jumped by another percent. Likewise, by the way, the other rates – the deposit rate, the Lombard rate, the discount rate and the bill rediscount rate.
The current interest rates are as follows:
- the reference rate has risen to 2.75 percent,
- the lombard rate to 3.25 percent,
- deposit rate to 2.25 percent,
- the bill rediscount rate to 2.80 percent,
- the discount rate to 2.85 percent.
We haven’t seen such high values in the country since June 2013, nearly nine years. This is also the period when real estate prices grew the most. Demand was also growing, mainly due to the increased availability of mortgages precisely because of low interest rates. That, however, is just now changing, with creditworthiness flying headlong month after month. This means that it won’t be long before a statistical married couple will not be able to afford to buy an apartment of a size that will allow four people to live in it.
As calculated by the TotalMoney website, only over the past few months the average creditworthiness of a couple earning a total of PLN 6400 has sunk by nearly PLN 130,000. Such a large downward rally, with simultaneous strong price increases in the real estate market effectively takes away even a dozen square meters of space, and if we take into account the planned further increases in interest rates, it may turn out that the same couple will soon be able to afford just a studio apartment.
