Another record set in the mortgage market once again drew attention to the risks that borrowers are exposed to. Analysts agree that we will face further hikes in interest rates, and therefore higher monthly premiums.
- The market expects further increases in interest rates, which can be seen not only in the published analyzes, but also in the increase in the profitability of Polish bonds.
- Higher interest rates mean higher monthly mortgage payments
- Possible increase in interest rates by 0.25 p. It will mean an increase in the monthly obligation of the bank by 125 PLN compared to the amount before the October increase. Increase by 0.5 p. It is a higher monthly expenditure of 170 PLN
- Senior Analyst Expander reminds you the main question to ask by planning for a loan to avoid the repayment problem in the future
- You can find more of this information on the Onet homepage
After 15 months of very prudent policies The Monetary Policy Board, which surprised the market with its moment and size, raised interest rates by 0.4 points. The reference rate is 0.50 percent. on an annual basis. (Lombard rate 1%, deposit rate 0%, rediscount rate 0.51%, discount rate 0.52%).
The increase led to an increase in the interest rate on Polish bank debt. Mainly interested in the size of the increases are holders of mortgage loans, some of whom have already received information about the increase in their monthly payments. As we wrote in BI Polska, in the case of 300 thousand. The PLN loan for 25 years was recently granted, the monthly increase amounted to 63 PLN.
The market expects more hikes
An October rate hike likely won’t be the last market expectation. Already on the day the MPC decision was published, ING Bank Śląski experts indicated that they expect further moves from the central bank. In their opinion, the target interest rates may be 2.5%, which can be reached for up to two years.
President of the National Bank of Poland, A. Adam Glapinski does not indicate in his communications directly what decision to expect.
I would like to remind you that you should read our communications after the meetings very carefully. Every sentence has its significance, even the ones that don’t. There is no sentence indicating the beginning of the cycle, but there is also no information whether it is a one-time action – He said in response to a question whether the Monetary Policy Committee is considering raising interest rates. At the same time, he added, the October rate hike was too big “just to mean something”.
– Now we will calmly look at the effect of the increase – summed up. He indicated that if the economic situation is very good, there may be more hikes. A few weeks later, the Polish National Bank decided to suspend the promissory note loan to banks, which was a step in the normalization of monetary policy, as it limits the possibility of money creation by commercial banks. Earlier, with the same effect in mind, the MPC raised the required reserve rate by 150 basis points to 2%.
The market seems to be reading all of these moves as an announcement of an interest rate hike. This can be seen in the increasing profitability of Polish bonds and futures Wibor Interest Rate.
What does a potential interest rate increase mean?
What could the expected market interest rate hike mean for borrowers? According to the simulation conducted by Expander, in the case of a mortgage loan in the amount of 330 thousand. PLN With a repayment period of 25 years at the beginning of October (before the MPC decision), the rate hike raised the monthly premium from PLN 1,539 to PLN 1,620 (by PLN 81). Other potential MPC steps will increase premiums to:
- PLN 1664 – 0.25 pg increment. to the level of 0.75%;
- PLN 1709 – increase by 0.5 p. up to 1 percent
In the face of market expectations, interest rate levels need not be final. So what should they pay attention to? People who are planning to get a mortgage in the near future? We asked Jaroslaw Sadowski, Xpander’s chief analyst, about it.
Usually, I would advise you to think before committing whether we are going to deal with a case where the premium increases by up to 50%. This, of course, will require a significant increase in interest rates, but with a loan for such a long period, such a situation clearly cannot be ruled out.
– The expert says and points out at the same time that attempts to reduce the risks arising from the long loan period by shortening it are currently not available to a large part of borrowers.
– The cost of apartments is increasing so rapidly that in order to increase creditworthiness, those who are considering a 20-year loan should choose 25-year loans. In this way, they increase their capacity – it confirms and states that recommendation “S” issued by the Polish Financial Supervisory Authority does not allow to increase the creditworthiness of customers by extending the repayment period more than 25 years.
According to the expert, the rise in apartment prices is also significantly limiting the popularity of loans with decreasing installments that were promoted a few years ago.. – The choice of this type of loan leads to a significant decrease in creditworthiness, because the bank calculates it in relation to the amount of the higher premium. As a result, instead of a two-room dream apartment, the client will have to buy a studio apartment or an apartment far from the center – he explains.
The third solution is Fixed rate loans, which, however, today are definitely more expensive than floating rate loans. The choice of this type of loan depends mainly on the nature of the bank’s client. If peace of mind and the awareness that he will pay the same amount each month is key, this is a good solution. However, the cost of this peace will be that from the start, the premiums will be much higher than the floating rate. The difference is so great that the vast majority of borrowers choose a variable interest rate. They do not believe that interest rates will rise so much in 5 years that the premiums will be higher than the fixed rate of interest. It should be remembered that most banks guarantee that the premium amount will remain unchanged for only 5 years. So the choice is either I’ll pay a lot more right away, but for five years I won’t see any further increase, or I’ll pay less and think the premiums could increase dramatically – says Sadowsky.
The possibility of an increase in interest rates arises in the case when the housing market in Poland is very hot. From May 2020 to September 2021, according to BIK data, the Poles received loans worth about 105 billion PLN for the purchase of apartments. In September alone, a new record was broken when In just one month, almost 8.5 billion PLN were granted loans.
At the same time, the average loan amount is growing, reaching a record 335.26 PLN in September 2021. PLN.
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