“Flat for the Young”, Recommendation, obligatory own contribution, reduction of interest rates, increase in creditworthiness are the main topics that dominated the talks of borrowers. Have they dominated the housing loan market to the same degree and influenced its shape?
The past year on the mortgage market
Despite earlier announcements, passed quite peacefully, although it abounded in many important changes. Although none of the new regulations and changes turned the market upside down. We write below what is important in 2014 on the housing loan market in the summary of the year.
Recommendation S – at the same time tightened and softened. Recommendation S of the Polish Financial Supervision Authority was to change the housing market. Yes, it has introduced many significant changes in loan regulations, but it has not changed the face of the loan and real estate market drastically. First of all, it introduced a mandatory own contribution of 5% of the property value.
Contrary to skeptics’ forecasts, the credit market did not collapse because this level of own contribution was not a problem for customers. It is worth emphasizing that although the PFSA recommended a minimum of 5% of its own contribution, many banks required borrower commitment of 10 or even 20%. Only 10 banks in 2014 were willing to grant loans with only a 5% contribution, and 2 institutions always required a large higher own contribution, as much as 20%.
The recommendation, on the one hand
Tightened lending policy, but brought some real relaxation of requirements. KNF regulations changed the rules for calculating creditworthiness. Until the end of 2013, the loan repayment period for the purposes of calculating creditworthiness could not be longer than 25 years. The recommendation allowed it to be extended by 5 years, which translated into an increase in creditworthiness by about 4-6 percent.
Although we can calculate creditworthiness for a maximum of 30 years, the loan repayment period itself suggested in Recommendation S cannot exceed 25 years. An extension to a maximum of 35 years is possible, but only with calculations showing the increase in loan costs. This means the end of loans for 40 or even 50 years, because such a long repayment period is associated with a huge increase in interest costs, with disproportionately lower installments.
The new regulations also confirmed the maximum reduction
In the possibility of taking foreign currency loans. From July this year, only people earning in a given currency can apply for a foreign currency loan. The recommendation enforces compliance of the income currency with the currency of the loan. However, this was the case in many banks many months before the KNF’s recommendations came into force.
We have seen a significant reduction in the availability of foreign currency loans in banks for several years. It can be applied for either by people earning in a given currency or earning in zlotys, but only on the assumption of generating income at the level of several thousand per month. This policy of banks limited the availability of foreign currency loans, and Recommendation S only confirmed the current situation.