Mortgage Mojo at 1-Year High Amid Record-Low Rate: Poland Credit

Polish home loans are growing at the fastest pace in a year, a sign of burgeoning consumer confidence amid speculation mortgage rates have hit bottom.

Loans to buy homes rose 4.7 percent in July from a year earlier, according to the latest Polish central bank data. This compares with a 0.7 percent increase in mortgages in the 17-nation euro region, European Central Bank data show. The average rate on a new home loan in zloty fell to a record 5.1 percent in the month, compared with 3.2 percent in the euro area.

Evidence is mounting that 2.25 percentage points of interest-rate cuts since November, to a record low 2.5 percent on July 3, is feeding the recovery in Poland, the European Union’s biggest eastern economy. Consumers are responding by taking out mortgages as central bank Governor Marek Belka said on the day the policy council last cut rates that borrowing costs would stay unchanged for the “foreseeable future.”

“Consumers feel more secure and are willing to take on long-term liabilities,” Piotr Bartkiewicz, an economist at BRE Bank SA in Warsaw, said by phone on Sept. 19. “This is part of the economic revival process. Someone’s spending is revenue for someone else.”

Lower Costs

Falling apartment prices, cheaper loans and looser lending rules helped the home loan market expand to 330.7 billion zloty ($106 billion) in July, central bank data show. Mortgages in Poland are mainly floating-rate loans maturing in 25 years or more, according to the Polish Banking Association.

Average apartment prices in major Polish cities fell last month from a year earlier, with the decline ranging from 1.8 percent to 5.6 percent, according to data on Warsaw-based financial-services broker Open Finance SA’s website. In Warsaw, Poland’s biggest property market, the decline was 2.9 percent. An apartment in the Polish capital cost on average 1,822 euros ($2,461) per square meter last year, compared with 3,270 euros in Berlin and 9,419 euros in London, according to the latest data from research company Reas Residential Advisors.

“With costs at very low levels the market is up on its feet again,” Marcin Jablczynski, an analyst at Deutsche Bank AG in Warsaw, said by phone on Sept. 19.

The rate on a new Polish mortgage fell from as much as 7.1 percent last year. This compares with an average rate on a 30-year U.S. home loan of 3.75 percent, according to Bankrate Inc.

Accelerating Economy

The Polish financial regulator’s decision to loosen restrictions on how big a loan a household can take relative to its monthly income also “helped revive the home market,” Finance Minister Jacek Rostowski told lawmakers last week.

Rising home loans will help Poland’s $490 billion economy, where domestic demand accounts for about 60 percent of output, continue recovery after growth hit the slowest pace in four years in the first quarter. Gross domestic product in the second quarter rose 0.8 percent from a year earlier after a 0.5 percent increase in the previous three months.

Poland recorded a fourth consecutive monthly trade surplus in July as foreign demand for Polish products picked up while annual retail sales growth was the biggest since last August.

Still, mortgage growth may be short-lived once new rules come into effect next year. Banks will no longer be allowed to award loans amounting to 100 percent of a property value and homebuyers will need to make a down payment of at least 10 percent. The regulator also demands banks give home loans with maturity of no more than 35 years and limit non-zloty mortgages to customers with income in foreign currency.

Rate Increase

“It’s probably too early to announce the start of a boom,” Dariusz Gorski, an analyst at Bank Zachodni WBK SA in Warsaw, said by phone on Sept. 20. “Unemployment remains high, economic growth isn’t very quick and people need more signals to feel safe and secure.”

The extra yield investors demand to hold Poland’s dollar bonds rather than Treasuries was unchanged at 129 basis points at 3:17 p.m. in Warsaw, according to JPMorgan Chase & Co. indexes. The spread between Polish 10-year zloty notes and German bunds increased two basis points, or 0.02 percentage point, to 242. The zloty weakened 0.2 percent to 4.2239 against the euro, paring its quarterly advance to 2.4 percent, the biggest appreciation among 24 emerging-market currencies tracked by Bloomberg following the Korean won.

Poles are buying apartments before the central bank starts tightening policy. Policy makers will probably start rising rates in the fourth quarter of 2014, Bank of America Corp. said in a note on Sept. 20. Forward-rate agreements, derivatives used to speculate on borrowing costs, indicate a quarter point increase by June, according to data compiled by Bloomberg.

“The property market in Poland is reviving as apartments are the cheapest in years, cost of credit dropped and some people may be afraid of stricter rules next year,” Michal Wydra, an analyst at the Polish Banking Association, said by phone on Sept. 19. “We need to see figures for September and October to say whether the rebound is sustainable but preliminary data suggest the trend will be continued.”

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