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Mortgage Lending in Poland 2011-2013
Inteliace Research, Feb 2011, Pages: 30
“Mortgage lending in Poland 2011-2013” is the latest edition of the regular research paper published by Intelace Research. Report builds on the success of the 2010 issue and provides an updated view of emerging trends on the Polish mortgage lending market. Similarly to the previous version our analysis covers a wide range of perspectives including: Market size, competitive structure, market shares and margins. A mid-term market forecast of mortgage lending value through 2013 has been also included.
Research findings have been presented in a structured and logical way in a form of horizontal presentation on 30 slides.
Executive Summary
- Real estate market. Residential real estate prices have been stabilizing since 2008, when the strong upwards trend came to an end. In contrary to other European markets, no significant correction in residential real estate prices could be observed in Poland. This can be attributed to both: persisting deficit of quality flats and houses and still limited supply of new units. The global crisis and frequent problems with financing, have delayed or halted several construction projects, during last two years. The number of completions fell down in 2010 by over 15%, which suggests that most developers prefered to reduce supply rather than to offer a significant price reduction. Looking ahead, there is still no sign of a rapid recovery in the residential construction market. The most recent figures on new starts (+10% in 2010 vs. 2009) suggest only slight increase in the supply of new dwellings at least until 2012.
- Mortgage lending. After the sharp decline in 2009, sales of new mortgage loans rebounded in 2010. The number of new loans increased by 22% while the lending value jumped by 26% in 2010. In contrary to previous years, new mortgage contracts were typically denominated in local currency (over 72%). Within foreign currency loans the Euro replaced the Swiss franc. At the same time the average mortgage contract value remained relatively low (~53 thousand EUR), while the share of loans with high LTV (over 80%) jumped to new records -reaching almost 45% of mortgage loans sold in Q3 2010.
- Risk and regulatory. The long-term trend of falling non-performing loans ratio (NPL) reversed in 2009 and since then, the level of NPLs is constantly increasing. Lower sales of new loans (less dilution) together with growing delays in repayment of existing loans contribute to the problem. The average mortgage NPL ratio increased y.o.y. by almost a half to 1.9% in December 2010, In order to address the problem of worsening quality of loans, the Financial Supervision (KNF) adopted a new lending directive in 2010. The so called “Rekomendacja T” imposed on banks strict requirements to adjust total debt obligations of individuals to their income. For example, loan payments can not exceed 50% of client’s net income (65% in case of clients with net income above average level). To further reduce risks resulting from fx-loans, another regulation is expected soon. A so called „Rekomendacja S III” will make fx-loans less attractive to customers and will limit the maximum size of loan for customers with lower income.
- Future outlook. Multiple driving forces will affect mortgage lending in the near future. Persisting demand for residential real estate and stable financial condition of households will drive sales of mortgage loans. On the other hand, more restrictive regulatory environment and cuts in government subsidies for first home buyers are likely to negatively affect the mortgage business. As a result sales of new mortgage loans are likely to increase slowly (in contrast to previous years) through 2013. Apart of weaker growth in sales, banks will need to respond to growing risks, including the recently observed growth in LTV ratios and the general upward trend in interest rates. The result may be quickly falling quality of mew mortgage portfolios, because „high LTV” loans in the growing nominal interest rates environment are typically most difficult to serve.
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