Safe 2% Loans Boost the Credit and Housing Market

Rafał Litwińczuk remarked that approximately 60 percent of mortgage loan applications examined by Alior, PKO Bank Polski and PeKaO SA today have been filed under the “Safe 2% Loan” programme. Some customers have been waiting for the programme announced in December last year to be launched. Application volumes are growing – approximately 40,000 were filed in August alone, the market having recorded an identical number for the whole year 2021.

“This is an enormous difference in terms of our capacity for handling large customer volumes over such a short period. Given the considerable operational challenge, we multiplied our headcount in these areas”, said Rafał Litwińczuk, pointing out that under the current loan distribution model, over two-thirds of sales are generated by intermediaries, who – obliged by the Mortgage Loan Law – present prospective clients with three proposals, despite banking offers for the product closely resembling one another.

“It was designed as a two-percent product and so it is, any slight differences tying in with procedural costs generated by insurance, for example – life insurance, loss of employment insurance – or the commission collected upon loan release”, explained Alior Bank’s deputy CEO. “Once you compare the cost of the loan at the 30-year mark, our offers differ by around one percent”, Rafał Litwińczuk added, pondering the justifiability of a model wherein intermediaries are obliged to present prospective customers with offers of all three banks in each and every case, no exceptions.

Flats Needed

Bankers list the new housing stock supply as a key challenge to the development of the newly boosted mortgage loan market.

Wojciech Werochowski pointed out that while the volume of new flats handed over to tenants grew by over a dozen percent in 2022, this was merely the outcome of earlier investments, the effect duly followed by a slowdown.

“The mortgage loan market slump notwithstanding, we had things we could actually finance last year. Yet the number of construction permits and development projects kicked off was lower than in the previous year – bear in mind that time and patience are required during the notion-to-motion, or construction permit-to-actual construction stage. Consequently, the uplift effect will only become apparent on the supply market once some time has passed. On the other hand, a boost arising directly from the ‘Safe 2% Loan’ programme has already become apparent on the loan market, though we continue recording overall lower sales volumes than in times of prosperity. Nonetheless, it goes without saying that the programme should truly augment the loan market”, Wojciech Werochowski declared.

As of this day, bankers expect no threats to further product success. “As a bank, we have a fairly simple scenario for the area: provide customers with the respective service, i.e. deliver whatever they need, swiftly and efficiently. In order to do that, we are optimising and automating our loan procedures and making all organisational work more effectual, with a seamless loan approval process in mind. There is no doubt in my mind that the programme will continue developing successfully”, Maciej Brzozowski said in an appraisal comment.

He reminded debate attendants of pandemic-related events, developers having put all projects on hold and curbed land bank use, fearing, among other things, a drop in their customers’ purchasing power.

The Market Environment

Wojciech Werochowski pointed out that macroeconomic conditions seem to be slowly but surely acting in favour of the mortgage loan market.

“We can expect a decline in interest rates following the most recent decrease, and account for inflation with something akin to cautious optimism since rates have begun stabilising. There is obviously the ongoing war to consider, a factor invariably impacting major purchase decisions; nonetheless, I am an optimist. I believe that with the launch of the programme – given interest rates shifts and whatever we may expect in the economy – the housing market will pick up, the trend particularly true for the mortgage loan market”, the deputy CEO of PeKaO SA declared.

The bankers further pointed to conditions specific to the Polish market, the role of loan distribution intermediaries of particular importance.

“We should expect a certain period of continued operations in a market where Polish customers will typically approach intermediaries, expecting them to offer advice. We have been imprinted with something of a long-standing stereotype and schema of going to middle-men if in the market for a mortgage loan since intermediaries are perceived as objective advisors and better bank offer selectors”, said Wojciech Werochowski, expressing a belief that we should not expect the habit to change any time soon.

Other typical market features include the wish to own rather than rent, the latter generally common across Western Europe. A mere 13 percent of tenants in Poland rent housing, while the European average is up to three times higher. While bankers are expecting the “Safe 2% Loan” programme to boost the trend of home ownership aspiration purchases, they will not abandon offers addressing customers interested in flat rental.

“Members of the younger generation have a higher propensity for rental rather than ownership, as proven by behaviour and expectation surveys. Converting the trend onto the housing market gives rise to the question of how we can influence the phenomenon as the banking sector, providing customers with financial instruments designed to support the rental format”, said the deputy CEO of PeKaO SA.

Rafał Litwińczuk emphasised that the homeownership wish is not unique to the Polish market, having been identified as prevalent across Central and East European countries in general – in Bulgaria and Romania, for example, these indices are considerably higher, albeit it goes without saying that ownership pressures are blatant in Poland.

Notwithstanding the above, Maciej Brzozowski pointed out that there is no justification for grafting West European patterns onto Polish soil and trying to convince customers to rent rather than buy homes.

“Polish home ownership aspirations are a fact. As a banker and person responsible for selling such products, I have simply accepted the reality. Our intent is to deliver a possibly high loan volume to a possibly high number of individuals, offering them a sense of satisfaction on the one hand, and a means to meet their basic needs, the need for home ownership, on the other. By doing so, we are combining two components herein: the commercial – essential to the bank delivering its own strategy; and that tying in with corporate social responsibility – driving us to provide as many loans as possible to young people on the brink of a new stage in their lives”, the deputy CEO of Poland’s largest bank explained.

He further underscored how difficult it was for Poles to become homeowners from the mid-1950s, a factor justifying, as it were, the great numbers aspiring to property ownership. He also recalled developments in Western Europe where rental fees had begun skyrocketing, and tenants running into major payment issues.

Maciej Brzozowski highlighted the social importance of the “Safe 2% Loan” programme.

What to Expect

Debate participants listed augmenting flat sales, improving mortgage loan distribution models, and bettering the economic situation as a factor enhancing customer creditworthiness as key challenges for the coming months.

“The current demand shortage is an unquestioned challenge. Developers began putting investments on hold last year. The construction permit volume dropped by nearly 40 percent, interest rates shooting up to unprecedented levels; customer creditworthiness became the pivotal issue. These are currently our main challenges”, said Rafał Litwińczuk, adding that the economy is now on an upturn, promising to overcome all aforementioned challenges. “The number of permits issued and construction projects launched is visibly on the rise, quarter on quarter. Since the cycle spans 1.5 to 2 years, supply will be on the rise, however delayed. Yet price increases will be a trial as well”, he remarked.

Wojciech Werochowski emphasised that acting to support evolution in the mortgage loan distribution model – based on intermediaries today – is a challenge for all banks. “Whoever comes up with a good mortgage and gains greater processual efficiency medium-term will ultimately win”, the deputy CEO recapitulated.

MB