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Real estate. Living on credit can mean a lot of risk

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Buying an apartment on a loan is a decision made by more and more Poles every month. However, the Office of Competition and Consumer Protection encourages consumers to exercise caution. When taking a long-term loan to buy a property, you have to take into account the risk that installments will increase significantly, the price and value of the property will drop, and there will be changes in the labor market causing a reduction in income – warns the office.

UOKiK pointed out that, due to the rising real estate prices since the end of 2019, many people are considering buying a flat on a loan. However, he warned that over the decades of loan repayment period, there may be significant fluctuations in interest rates that affect the amount of loan installments repaid, increases or decreases in real estate prices or their value, as well as changes in the labor market that may affect the amount of the borrower’s income .

Buying an apartment on a loan – what to look for

Referring to the BaRN housing price databases of the National Bank of Poland, the Office assessed that currently apartment prices are rising like never before, both in Warsaw and other large cities. “However, it should be remembered that such a situation will not last forever. The faster and higher the price increase, the more rapid and deeper the fall will be. real estate prices in 2008-2012 “- warned UOKiK in a press release.

Apartment prices in Warsaw and other Polish citiesUOKiK

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UOKiK also noted that it is also possible to increase the interest rate on loans, resulting in an increase in loan installments. As noted in the announcement, the vast majority of mortgage loans are based on a floating rate, which means that along with a change in interest rates, the amount of the loan installment also changes. At the same time, interest rates are at record low at the moment. The WIBOR 3M reference rate is 0.1 percent. (as of August 25, 2021) and has remained at this level since May 2020. For comparison, in March 2015 it was 1.5%, and in 2012 – 4.91%. In the opinion of the Office, the risk of an increase in the WIBOR 3M reference rate is “very high”.

The announcement also presents an example of the amount of a mortgage loan installment for various WIBOR 3M values ​​with the following assumptions: fixed installment, loan in the amount of PLN 300,000, loan period 25 years, bank margin of 2.75%. At the current WIBOR 3M rate of 0.21%, the monthly installment of such a loan will amount to PLN 1,416.40. However, with the WIBOR 3M rate of 5.00%, to which the rates were similar in 2012, the installment is PLN 2,265.99.

Loan installments – UOKiK calculationsUOKiK

UOKiK also pointed out in the announcement that in the case of floating rate mortgage loans, the bank should present a simulation of loan costs for various levels of the reference rate, including 3 percent, 5 percent and 10 percent and for the current loan interest rate increased by 4 percentage points.

Credit costs

He also reminded that the interest rate is not the only cost of the loan and that lower interest does not always mean a more favorable loan. He pointed out to pay attention to the terms and conditions contained in the contract, on which the loan is granted: How will the bank change the interest rate in the event of a change in interest rates, will the bank require an own contribution and in what amount, what is the margin and other additional costs, what are the conditions for early repayment of the loan – will the bank request a commission on this account, if and what the bank will be able to take steps in the event of a decrease in the value of the property.

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The Office emphasized that the bank may reserve the commission only if the repayment of all or part of the mortgage loan is made within 36 months from the date of the contract.

“During the term of the loan agreement, banks analyze prices on the real estate market on an ongoing basis and the relationship between the amount of the loan outstanding and the value of the flat or house that is its security. This is determined by the LTV – loan to value ratio. what steps can the bank take if the LTV value exceeds 100 percent. ” – the President of the Office, Tomasz Chróstny, noted in the announcement.

Main photo source: Shutterstock



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