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Bedour Ibrahim

New mortgages this year are expected to drop 33%

Poland’s Mortgage Gloom Deepens With Loans Set for 18-Year Low

Monday 27/February/2023 - 06:37 PM
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Poland’s mortgage market is set to shrink to the lowest level since 2005 as banks restrict home loans over concerns about potential defaults and mounting legal risks.

New mortgages this year are expected to drop 33%، continuing the downturn from 2022 when the market halved due to the steepest series of rate hikes in the country’s history، according to the Polish Bank Association. 

“Banks now need to be super cautious with offering new loan contracts،” Krzysztof Pietraszkiewicz، head of the lobby group، said on a conference call on Monday. “With economic slowdown potentially hitting households’ ability to repay debt and exotic interpretation of rules، precautions are by all means needed.”

The latest blow  

Poland’s mortgage market is battling with a series of issues. The latest blow came earlier this month when an adviser to the European Union’s top court issued an opinion that could mean banks can’t claim compensation for lost interest from customers whose contracts were annulled by local courts over foreign-exchange clauses deemed unfair.

The determination is connected with a long-running saga over Swiss franc mortgages، but Poland’s financial community is concerned it could set a precedent for all loans. 

On top of the legal concerns، soaring coasts are squeezing consumers. Home loans in Poland were almost exclusively variable rates، which means households were hit directly by rate hikes. Nearly 310،000 Poles dipped into savings in 2022 to pay debt، triple the number the previous year، according to the association. 

To ease the burden on households، the Polish government has allowed consumers to skip some payments، costing banks almost $3 billion. There has been some reports that mortgage moratoriums may be extended beyond 2023.

The uncertainty for Poland’s financial sector 

A planned replacement of the official benchmark for variable-rate loans has added to the uncertainty for Poland’s financial sector. 

To revive the housing market، the government plans to offer subsidies for first-time home buyers that would trim annual interest on mortgage to 2%، compared with the current market rate of 9.2%. 

The program is expected to take effect in July and may help to boost demand in the long run، if legal uncertainty is resolved، the Polish Bank Association said. Lenders also called for regulations to help to end disputes with Swiss-franc borrowers.