The Financial Supervision Authority (KNF) published its “Results of research into consumption and mortgage loan portfolio of households at the end of 2018”.
“It should be noted that large increases in prices may lead to the over-indebtedness of some households,” warns KNF.
“The average value of a mortgage loan rose from PLN 180 000 (EUR 42.250) in 2013 to PLN 268 000 (EUR 62.900) in 2018. The main cause of this rise are price increases on the real estate market,” reads KNF’s analysis in the report.
The increase in real estate prices can be explained by a few factors. One of them is an increase in household income, driven largely by a rise in wages, caused by the lowest unemployment in Poland since the transition to a market economy. Another reason for higher household income is the government’s social spending, such as the 500+ child benefit program.
The increase in income allows people to spend more on real estate. This is true not only for people seeking to buy their first home, but for people looking to invest their savings too. The investment of savings is encouraged by the record-low interest rates of the National Bank of Poland (NBP), set by the Monetary Policy Council (RPP).
Another cause is the increase in construction costs. Real estate developers are benefiting from high demand, both directed at personal home ownership and at investment, by maximising their profit margins.
“We observed that the higher the value of a loan, the lower its quality,” notes the KNF report on consumption loans. The ‘lower quality’ of a loan means it’s less likely to be paid in full, on time.
KNF noted that in the case of nearly 200,000 loans, worth some PLN 45.6 bn (EUR 10.7 bn), the debtor spends over half of his income on repaying the loan. If interest rates rise these loans run a very high risk of not being repaid. There were also 390,000 loans, worth some PLN 89.2 bn (EUR 20.9 bn), which cost the debtors over 40% of their income.
Overall, at the end of 2018, there were 2.2 mln mortgage loans, worth in total PLN 406.4 bn (EUR 95.4 bn) and 20.5 mln consumption loans, worth in total PLN 164.3 bn (EUR 38.5 bn).