If the interest rates, and above all the three-month WIBOR, which is the basis for most mortgage loans, go up to the pre-pandemic level, the average installment will increase by around PLN 250. If it does not end there, the installment increase may reach even several hundred zlotys – according to the calculations of the main analyst of Expander Jarosław Sadowski prepared for TVN24 Biznes.
A record was set on the market in July. From the data of the Credit Information Bureau shows that it was the first time that banks and credit unions granted housing loans for PLN 8 billion. It wasn’t a one-time jump. – July was the fifth month in a row with a monthly lending value exceeding PLN 7.5 billion – explained recently prof. Waldemar Rogowski, BIK’s chief analyst. Data for August has not been published yet, but it can be assumed that the result will be similar.
It is influenced by rising real estate prices, but also interest rates. Reduced last year to a historically low level due to the pandemic shock economy, they have remained at their current level for more than a year.
Low rates are to encourage lending and spending money by companies and ordinary Kowalski, but at the same time they make it unprofitable to keep money in banks – in deposits, and even more so in ordinary accounts. Especially with in 20 years of inflation at mostwhich would mean a real loss of savings. Therefore, money for the real estate market flows from people who want to satisfy their housing needs, but also from those who treat it as a way of investing capital.
3M WIBOR is growing, loan installments are up
The paradise of low interest rates may end soon, however. “At some point, we’ll have to raise these rates, of course.” This is not the normal level of interest rates that we would like to see – admitted the president of the National Bank of Poland, Adam Glapiński a few days ago. There is a question of the date of the first increase since 2012, their number and scale. It is this news that the borrowers are anxiously awaiting.
Higher interest rates mean at the same time a higher three-month WIBOR, which is most often the basis for the interest rate on mortgage loans in PLN. – WIBOR does not change exactly in the same way and at the same time as NBP interest rates, but in a very similar way – explains Jarosław Sadowski, chief analyst of Expander Advisors.
– It may happen that the NBP rates have not changed, and WIBOR has not changed. This is because WIBOR starts to rise (fall) as soon as there is a belief that the Monetary Policy Council may make a raise (cut) in the near future. However, the biggest changes in WIBOR usually take place only when the NBP rates actually are corrected – he adds.
Several million zloty borrowers will find out that the market expects an interest rate hike in the coming weeks. Because the 3M WIBOR “revived” – as mBank analysts wrote on Twitter on August 30, after the rate increased from 0.21 to 0.22. Currently, the 3M WIBOR level is 0.24 percent.
As a result, at the beginning of the month, mBank updated its benchmarks for the purposes of, inter alia, mortgage loans. – From September 3 this year, the value of WIBOR 3M in the bank is 0.22 percent. – explains Emilia Kasperczak from mBank.
As he explains, the base rate is updated four times a year. – On the penultimate business day: February, May, August and November, we check the WIBOR 3M reference rate used in the market. If, on the check date, the reference rate differs from the bank’s base rate, we update it. We update, i.e. we take the WIBOR 3M reference rate from the day of checking as the base rate. This rate is valid at the bank for the next three calendar months. The bank updates the rate every third business day of March, June, September and December – he adds.
It is similar in other banks. – For customers whose loan interest rate is variable and calculated based on WIBOR 3M, the bank updates the loan interest rate every 3 months based on the current value of the WIBOR 3M reference rate. Therefore, the update date will be individual for each client, as it results from the date of concluding the loan agreement – explains Iwona Radomska from PKO BP.
What does this mean in practice? Installment increases. For the time being, only a few zlotys at most, but according to Jarosław Sadowski, “the time of the cheapest loans in history is slowly coming to an end” and further increases can be expected.
The Office of Competition and Consumer Protection drew attention to the WIBOR 3M index in recent years. The information emphasized that the changes were dynamic: the WIBOR 3M rate fell from almost 5 percent. in 2012 to 1.74 percent in 2015, to achieve the observed level in 2021 – 0.21 percent. It’s just that it was a favorable situation for borrowers – installments were falling. “Currently, the amount of this rate (WIBOR 3M) is record low, but you need to be aware that it may also increase to the value it had in the past, eg to 1.7% or 5%, or even more” – emphasized.
What installments after the increase of WIBOR 3M
We asked Jarosław Sadowski to calculate the impact of an increase in WIBOR 3M on loan installments. The first table shows the effects of a loan taken recently for PLN 300,000 for 25 years. As you can see, the return of WIBOR to the level from before the pandemic is an installment higher by almost PLN 250. At the level of WIBOR 10 years ago (almost 5%, as mentioned by the Office of Competition and Consumer Protection), the installment increases by almost PLN 800.
The second table is the calculation for the loan from January 2008 for the amount of PLN 146,000 (this was the average loan amount in PLN), taken for 30 years (then this period was the most popular). The margin is 1.15%, and currently PLN 99,104 remains to be repaid.
Interest rate risk
UOKiK reminds that in the case of housing loans with variable interest rates, the bank should present a simulation of loan costs for various levels of the reference rate, including 3 percent, 5 percent and 10 percent Do the banks do it?
– Yes. In the process of applying for a retail mortgage product, the client receives information on the risk of changes in the interest rate already at the stage of the commercial conversation. Such information is also presented in the form of a credit simulation showing the effects of a potential increase in the interest rate on the loan – says Magdalena Ostrowska from ING Bank Śląski.
– The document on the variable interest rate risk is an obligatory document issued together with the offer – Paweł Jurek, a spokesman for Pekao, also emphasizes. At the same time – as he adds – a loan offer with a fixed interest rate is presented.
Loans with a fixed rate
According to the recommendation of the Polish Financial Supervision Authority of 2019, all banks in their offer should have loans with a fixed interest rate or periodically a fixed interest rate. The point is that throughout the entire loan period – or during some period of it – the interest rate is fixed, regardless of the market situation. In practice, banks opt for the latter solution – they offer a periodically fixed interest rate, most often for the first 5 years. After this period, there is an adjustment to the current WIBOR.
So the customer for five years does not have to worry about the decisions of the Monetary Policy Council, but there is also a minus – such loans are initially more expensive than those with a floating rate (the installment is higher).
According to the statements of representatives of some banks, it appears that there is a growing interest of customers in the offer of loans with fixed interest rates. Jarosław Sadowski, however, has no illusions: – Of course, customers are informed about them, but when they see the difference in the amount of the installment, they choose a variable interest rate. I suspect that when the first NBP rate hike occurs, customers will be much more likely to ask for a fixed-rate loan.
– Unfortunately, then the interest rate will be much higher than it is now. Banks have already started to raise such rates – he adds.
Main photo source: Shutterstock