New mortgage applications fall 70% in Poland following interest rate rises

The number of new mortgage applications in Poland fell by nearly 71% year-on-year in August and their total value fell by 73%, according to data from the Credit Information Bureau (BIK). The development follows repeated increases in interest rates in response to Poland’s highest inflation in 25 years.

“The August reading of the BIK Home Loan Demand Index showed that high interest rates, stricter regulatory requirements and fears of the effects of an economic slowdown and even a possible recession have all but frozen demand for mortgages. ”, said Waldemar Rogowski, chief analyst at BIK. .

BIK also reported that the August value of its index, which measures real estate demand in Poland, was again the lowest since the institution began collecting data in January 2008.

“There is no sign of a rebound from below on the horizon yet,” Rogowski said. “There are no signs that things will improve anytime soon.”

BIK mortgage demand index. Red line – dynamics of the value of the requested loans. Gray line – value of loan sales dynamics Source: bike

The number of people applying for mortgages has been falling steadily since April 2021, even before the cycle of interest rate hikes began. The average amount of credit applied for has also started to decline, which may indicate that borrowers’ ability to borrow has decreased.

“Should interest rates rise further, the demand for mortgages will be further reduced,” Rogowski said. “At the same time, with the growing burden of installments on the rise, a likely scenario is that there will be more interest in credit defaults in the coming months. Borrowers who have not used them until now can opt for a ‘credit vacation’”.

At the end of July, the The Polish government introduced so-called “credit holidays”that allow the suspension of loan repayments for two months per quarter up to a maximum of eight months.

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Approximately 44% of those eligible have benefited from the scheme.which aims to ease the burden on households facing loan installment costs as interest rates rise to their highest level in nearly 20 years.

On Wednesday of last week, Poland’s central bank delivered its 11th consecutive rate hike, raising Poland’s cost of debt to 6.75%, the highest level since 2002. That followed news in August that inflation had unexpectedly resurrected to a new 25-year high of 16.1%.

As a result of the drastic drop in housing demand, a developer operating in Krakow and Wrocław, Lokum, has stopped all new developments and plans to lay off staff. The company said its sales fell more than 50% year-on-year in the first half of 2022.

“For the first time in the history of the company, we have a situation in which we are the ones who do not want to launch new investments, due to the bad situation of the clients,” said a representative of the firm’s board during an earnings conference, quoted by the financial news service Strefa Inwestorów.

The board also indicated that it does not foresee reductions in the prices of the apartments on offer, since they will not cover the cost of building them. “At the price we are selling apartments for today, it would be difficult to build the same apartment right now. This situation can last up to two years.

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