Mortgage loans in 2020 – the year of the Covid-19 coronavirus

The year 2020 is slowly becoming a history, so it’s good time to sum up. No one will be surprised by the opinion that it was exceptionally difficult for the mortgage industry, as well as for most areas of the economy. Yet at the beginning of the 2020, we could noted a dynamic increase in real estate prices and a significant increase in newly granted loans, and banks required several weeks for issuing a loan decision. Thus in mid-March we were entering the unknown with a significant demand for housing and loans.

The second half of March marked the beginning of panic in many areas of the economy, which also affected the banking industry. The coronavirus turned out to be a stick inserted into the spokes of a speeding wheel, which was the optimism of banks in their approach to granting mortgage loans. From day to day, especially at the end of March, in April and May, we noted information about continuous tightening and restrictions in the lending policy: from increased requirements for own contribution up to 30%, through an increase in margin / commission and the exclusion of certain industries, called ‘covid`s’, until the lack of acceptance of income obtained from business activities, civil law contracts and complete suspension of lending in certain banks. Therefore, the banks’ approach to risk acceptance changed significantly, but as we know, in those early stages where, among others areas of activity, the lockdown concerned even entrance to forests, the enemy which the this virus was has not yet been recognized.

In the meantime, we observed changes in the monetary policy in Poland which resulted in interest rate cuts. At the same time, we could also hear comments on the problems that banks will face with withdrawn deposits due to the lack of interest rates. In this way, the slight increase in credit spreads that occurred in almost all banks, thanks to the falling WIBOR rates, was not noticed in the total loan interest rate. As a result, installments for new mortgage loans took a lower value than in the simulations before March 2020, and customers with older loans in PLN with variable interest rates could enjoy lower installments.

The expected thaw began in the hot summer months. Banks gradually loosened their lending policy and increased their lending actions. In the following months, clients running a business and employed under civil law contracts had a chance to buy a flat on a loan again. The own contribution of 20% has also become a necessary requirement in all banks, but still in some banks it was possible to count on a loan with a 10% own contribution, which, however, was associated with much higher margins. The next wave of the coronavirus in autumn did not have the same consequences as in the spring time. Until this day, banks continue their lending policy similar to one dated before March than the policy dated May 2020. The level of margins in relation to the “pre-vision” period is higher by approx. 0.3% or even 0.5% for customers with only a 10% of own contribution, but much lower level of WIBOR rates (decrease from 1.72% to 0.23% for WIBOR 3M) means that the installment for a sample loan of PLN 300,000 taken for a period of 25 years will be lower per month by approx. PLN 180 (PLN 1,323 monthly installment in December 2020).

Unfortunately, many banks established the list of excluded industries from which the income generated will not be taken into account by banks in the assessment of creditworthiness. This means that customers running a business in the gastronomy, hotel and tourist services industries will face significant problems. We can only hope that this policy will stop to be continue soon.

We are ending the year with the thought that the banks have acquired some resistance to the new conditions and still want to actively grant loans, and that the clients are still interested in taking them out. Both sides are more adapted to the new conditions of functioning during a pandemic, which can be seen, among others, after the studies of the Polish Bank Association, which indicate an increase in the number of loans taken already at the end of the third quarter of 2020. The interest in purchased apartments may also confirm the lack of a drop in prices, which was not in line with the expectations of a certain group of investors forecasting such a decrease due to panic on the market. The current level of interest rates is also important for the development of demand. Many clients still point out that the purchase of real estate is a good form of investing capital, especially the one that would lie in interest-free bank accounts, which in the context of the current 3% of inflation and similar forecasts of the National Bank of Poland for the next year seems to be a justified argument…