Fixed rate loans. Interest rate cuts. What can be done

The boom in loans with periodically fixed interest rates (usually for 5 years) began with the subsequent interest rate increases. According to data from the second quarter of 2023, over 63 percent were granted in this formula. new mortgage loans. In addition, some customers decided to change the current variable interest rate to periodically fixed ones to protect themselves from further installment increases. According to data from the AMRON-SARFiN report, only in the first six months of 2023, a total of 40,000 people obtained loans with a periodically fixed rate.

At the same time, the initiation of a cycle of interest rate cuts by the Monetary Policy Council may lead to many people considering switching from a loan with a periodically fixed interest rate to a variable rate or repaying their existing loan using a new loan.

– The cycle of rate cuts has only just begun. However, the longer it lasts, the more the problem will grow. I have not received any signals, but I have no doubt that it is only a matter of time before this trend starts, said Tadeusz Białek, president of the Polish Bank Association, in an interview with PAP.

– So far, no person has contacted us to indicate a problem related to a loan with a partially fixed interest rate and interest on such a loan. However, we assume that such matters will arise, because it would be a mirror image of situations that occurred when interest rates increased – we were contacted by clients who wanted to change the variable rate to a fixed rate – said Dariusz Kowalski from the Banking and Capital Market Customer Department. at the Office of the Financial Ombudsman.

WIBOR 3M – on which the interest rate of a large part of loans depends – decreased from 6.9 percent. at the end of July to approximately 5.7 percent Currently. This indicator reached a record level in November 2022, when it even exceeded 7.6%. Also, the periodically fixed interest rate on new housing loans granted by banks decreased from 9.1 percent. in November 2022 to 7.8 percent in August 2023 – according to NBP data.

If this decline is deeper, customers repaying loans with fixed interest rates may want to reach an agreement with the bank regarding changes to the loan agreement. This includes: an agreement with the bank to reduce the fixed interest rate, conversion to a variable rate loan, or repayment of the loan using a new loan from another bank (refinancing).

– In accordance with the fundamental principle of freedom of contract, the parties concluding a contract, including a loan contract, may arrange the legal relationship at their discretion – within the limits of freedom resulting from the provisions of law or the principles of social coexistence. This means that the parties also have the right to modify it. However, it should be remembered that based on this principle, changing the conditions requires the concerted will of the client and the bank – said Dariusz Kowalski.

However, in fact, customers repaying such loans have limited options, as banks have the right to apply a compensation fee in the event of repayment of the loan before the due date. According to art. 40 of the Mortgage Loan Act, “the parties may stipulate in the mortgage loan agreement compensation in the event of repayment of all or part of the mortgage loan before the date specified in this agreement.” This provision also states that “in the case of a mortgage loan in which a fixed mortgage interest rate applies for a given period, the lender may collect compensation during this period.”

However, the biggest problem may be the restrictions imposed by the Polish Financial Supervision Authority regarding customers repaying loans at a periodically fixed rate. With a recommendation from June this year, the supervision banned the refinancing of a fixed-rate loan with a variable-rate loan or the conversion of a fixed-rate loan into a variable rate one. The supervision also prohibited refinancing loans with a periodically fixed rate with another loan with a periodically fixed rate with a “duration shorter than the period for which the fixed interest rate was set in the refinanced loan agreement.” As the president of the Polish Bank Association said, the PFSA’s recommendation raised banks’ doubts.

– One of the issues we raised concerned legal doubts as to whether banks can obtain information about what type of loan a client had previously – said Tadeusz Białek. – From our point of view, an even bigger problem was the part of the Polish Financial Supervision Authority’s recommendation, according to which it is not possible to offer the client a lower fixed interest rate without extending the loan period – he added.

Białek emphasized that the banking sector is in dialogue with the Polish Financial Supervision Authority in this respect and operational issues regarding the application of the position are being clarified. In his opinion, in this way the Polish Financial Supervision Authority wanted to introduce the possibility of offering customers a lower fixed interest rate at the end of the period in which the interest rate is valid. Currently, only the customer can apply for a new fixed interest rate; if he fails to do so, after the end of the fixed rate period, the interest rate is converted to variable interest.

– It may happen that the bank will not be able to offer better conditions, which may lead to jumping to other banks, although I understand the intention that the aim of the position was to prevent this – admitted Tadeusz Białek.

He noted that a situation where customers want to negotiate better loan terms and the bank is unable to respond positively to the customer’s request for market reasons may result in disputes.

– It is certainly not the case that loans with a periodically fixed interest rate have any legal defects – they are based on the Mortgage Credit Directive. But we are aware that this whole situation, for operational reasons, may cause difficulties in banks’ relations with customers – said the president of the Polish Bank Association. Especially since when it turns out that banks cannot help their clients, some borrowers may try to find a solution in court.

– In the absence of an amicable agreement with the bank, the client may potentially verify the provisions of the contract in terms of the presence of prohibited clauses. The presence of such clauses may be the basis for taking legal action or may constitute a strong argument in amicable proceedings, said Dariusz Kowalski.

– Another possible solution to this issue is the intervention of the legislator. This was the case credit holidays – the legislator imposed changes on banks in their relationships with customers and, as a result, customers obtained some relief in servicing their loans, said Kowalski.

However, Tadeusz Białek points out that customers’ negative experience with the possibility of refinancing loans may affect their interest in loans with a fixed rate.

– This may be an image problem for the entire system, which promotes fixed-rate loans in an environment of high interest rates. We keep saying that a high interest rate environment is not appropriate for developing fixed-rate loans. Nowhere in the world have fixed-rate loans flourished at high interest rates. Only when rates are low and, above all, stable, does it enable the development of fixed-rate loans – added the president of the Polish Bank Association.