The average Polish family will now spend an average of 15 percent less on repayment of the installment of a new mortgage than last year. All thanks to the Monetary Policy Council. Her decisions to lower interest rates influenced the value of the Index
The Mortgage Debt Index (IOH) shows how much of the net income is consumed by the monthly mortgage installment. In the first quarter of this year, its value fell from 32.74% to 31.64%. This means that, for example, with a loan of USD 300,000, the monthly installment of the new loan has fallen by more than USD 100.
Lower interest rates on housing loans had the greatest impact on the IOH decline, both in annual and quarterly terms. The decisions of the Monetary Policy Council translated into lower Wibor, which in turn resulted in a heaper loan. The decline in IOH on a quarterly basis was not prevented even by adverse changes in the other two parameters determining the values of the Index. In the first quarter of this year, the average salary dropped in the analyzed locations, and the average offer price of selected properties increased slightly. However, the decrease in the average interest rate (from 5.91% to 5.17%) and the reduction in installments were so strong that they offset the fall in salary and a slight increase in property prices.
Installments down 15 percent
A significant decline in the Index is seen on an annual basis, in which IOH fell by over 15 percent from 37.26% to 31.64%, and this was due to similar reasons as in the quarterly analysis. This means that at present, when taking out a new mortgage, the average Polish family will allocate less than 1/3 of their net earnings to pay the monthly installment, and just a year ago it would have to spend almost 38 percent of the loan’s repayment income from the portfolio. The main reason for such significant savings in installments should be seen primarily in the decrease in interest rates on loans. Over the past 12 months, the loan interest rate fell by 1.33 pp from 6.50%, which clearly translated into lower loan installments. In March 2012, the average installment of the loan for the purchase of a 55 m2 apartment was USD 1,940, and 12 months later USD 245 less. In addition, since March 2012, the average wage in selected locations has increased by less than 3%. The accumulation of these two factors contributed to such a large decline in IOH in annual terms.
Diversity in every city
IOH readings for the largest cities do not exceed 40%, so they are within the limits of the “old” Recommendation T, according to which the burden may not exceed 50% of achieved income or 65% in the case when the remuneration exceeds the average achieved in the national economy. Although the “new” T Recommendation and the draft S Recommendation do not arbitrarily impose income load limits on banks, the KNF suggests that these limits should not exceed the suggested levels. 40% and 50% for earners above the national average are indicated as safe. These levels may be exceeded, but it must be a fully conscious decision of both the bank and the client, with all the consequences resulting therefrom.
In the first quarter of 2013
The Mortgage Load Index recorded a record drop in Kraków. Although IOH still has one of the highest values in the capital of Lesser Poland, the difference compared to other cities is not as large as in previous periods. Such a large decrease was caused by the accumulation of positive changes in all parameters determining the IOH values. The fall in interest rates, salary increases and a fall in real estate prices in Krakow resulted in a decrease in the value of IOH by over 11 percent. It is worth noting the large diversity of changes in each city. Although the IOH, calculated as the average for selected cities, fell by 3.34%, the values of the Index increased in half of the cities. However, these were relatively small increases and in combination with large falls in Krakow, Poznań and Warsaw, this did not reverse the downward trend that we have been observing for many months.
However, we do not observe such large differences in individual cities when analyzing the IOH values on an annual basis. In this case, the Index has decreased its value in every city, although the scale of changes is also large. We observe the largest decreases in Łódź (19.21%), and the smallest IOH fell in the Tri-City. When analyzing changes over 12 months, it is worth noting how important the interest rate on loans has recently been for changes in the IOH value. In the Tri-City in annual terms, we have seen an increase in the average offer price by more than 18 percent. However, the fall in interest rates was so strong that, combined with the increase in IOH salaries, it dropped its value anyway compared to March 2012.