Safe Loan: Just One Factor Contributing to the Rise in Housing Prices
While the “Bezpieczny Kredyt 2%” (Safe 2% Loan) is a demand-boosting programme, reasons for the increase in housing prices should also be sought in other market-impacting factors – such was the conclusion of the real estate market-focused debate held during the 2023 Krynica Economic Forum.
Forty-seven thousand six hundred and seven loan applications were filed, and 7,682 loan agreements for a total approximate amount of PLN 2.917 billion were signed in the first ten weeks of the “Safe 2% Loan” programme – as proven by data reported in the second week of September by the Ministry of Economic Development and Technology. The “Safe 2% Loan” programme and the general real estate market conditions were discussed in Krynica by participants of the panel “Between Need and Risk. Mortgage Loans, the Property Market and Consumers in New Times.”
“When it comes to the ‘Safe 2% Loan’ programme, the number of applications is less of an issue than the number of banks who joined the programme early in the day”, said Rafał Litwińczuk, deputy CEO of Alior Bank, during the debate. He further reminded those present that the scheme had originally included three banks. Now there are eleven.
The deputy CEO of Alior Bank pointed out that approximately 60 percent of loans in Poland is “sold” through intermediary institutions.
“Should we examine the subject more closely in terms of procedures middle-men have to follow pursuant to the Mortgage Loan Law, intermediaries are obliged to present a prospective customer with three offers. Consequently, the method of estimating application numbers becomes obscure – it may well be assumed that applications might in some cases be replicated, having been filed with several banks simultaneously. This translates into a huge workload for banks who had been the first to join the programme”, he explained.
Litwińczuk added that should the programme remain as popular as it is today, it would be worthwhile considering whether the requirement for intermediaries to wait until three banks submit an offer should be preserved – and whether customers actually need that to happen. As it is, the total cost of a thirty-year loan of PLN 500,000 will be well-nigh identical in case of institutions who were the first to join the programme, loan cost differences reaching around 1 percent.
The deputy CEO of Alior Bank described the programme itself as favourable, pointing out that customers see it as beneficial.
Yet, the huge interest in the programme ties in with the issue of steeply rising housing prices. According to Rafał Litwińczuk, price increases do not necessarily have to arise from the “Safe 2% Loan” programme. There are many potential reasons.
“The lower housing stock supply is another factor. The flat supply dropped because developers applied for fewer construction permits in the final quarter of 2022, fewer investments begun for high interest rate-related reasons”, he claimed.
The deputy CEO of Alior Bank argued that factors impacting housing prices include the influx of Ukrainian nationals, a stimulus for the rental market and the real estate market in general, sales segment included. According to Rafał Litwińczuk, contributing factors further include the activity of Scandinavian housing funds who purchased over ten thousand flats on the Polish market in 2022.
The deputy CEO of Bank Pekao S.A. Marcin Gadomski spoke warmly of the “Safe 2% Loan” programme during the debate.
“In principle, it is an excellent programme addressing the correct target group. Once developers become confident about its long-term format, the supply-demand instability issue will be resolved, I believe”, he declared.
Bartłomiej Marona, Ph.D., Cracow University of Economics professor and director of the “Real Estate Valuation” post-graduate curriculum at Cracow School of Business of the same university, pointed to additional goals delivered by the programme: backing of the construction and developer industries. He also pointed to the multiplication effect.
“Buying a flat means you also have to buy furniture, a refrigerator, washing machine, and so on”, he said. “Being a textbook demand-boosting programme (…), I believe it was appropriate for the time of its introduction, especially in the context of our economic development, construction sector, and whole real estate market”, the professor asserted. He further highlighted that in housing policy, demand- and supply-boosting instruments do not necessarily have to be mutually exclusive.
Debate participants commented on the specificity of the Polish mortgage loan market as well.
“The primary issue with mortgage loans in Poland is that the value of interest hedging has not evolved in consumer awareness. In other words, few fixed-interest loans have been sold in Poland in comparison to the entire European market in general. While the index is now on the rise (…), we would need change-generating system solutions”, Rafał Litwińczuk emphasised. He also pointed to the significance of educating customers who would then have a higher propensity for entering into periodically fixed- rather than variable-interest rate loan agreements.
The deputy CEO of Alior Bank also underscored loan-related concerns typical for the banking sector.
“Suffice to mention that customers can repay their loans as early as three years into the deal with no financial consequences, albeit the interest rate could by then be entirely different to the one in force as of the loan activation date. Customers can repay loans in full or transfer them to other institutions. That is a major threat to the sector, which means that any related concerns are justified. I believe that if for regulatory reasons only, we should strive to preserve an equilibrium between parties, as equal treatment is due to all parties to any agreement”, he concluded.
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