Real estate prices are on the increase – Is this the right time to take a mortgage?
The prices of houses and flats in Poland are increasing. Many people choose mortgage loans. But some experts warn that it may be difficult in the future to repay the liabilities incurred now. In this article, we will explain if it is the right time to take a mortgage loan.
The analysis of real estate transaction prices carried out by Puls Biznesu, Bankier.pl and Cenatorium confirms an increase in the prices of flats in all major Polish cities. From Q1 2020 to Q1 2021, the prices of flats in Warsaw increased by approx. 5% and in Krakow by almost 7%. Lublin saw the most rapid increase in the prices of flats with an area of 35-60 m, reaching the level of 11.6%.
Prices of flats, inflation rate and differences in earnings
An increase in the prices of flats in Poland is strongly correlated to the inflation rate and salary increases. The level of annual inflation rate of 5.1% is close to an averaged increase in the prices of flats. Higher expenses are balanced by increased salaries. According to Infor, an average salary has increased by 8.7% during a year. Unfortunately, this does not mean that it is easier now to buy a flat than it was a year ago.
A high inflation rate has especially affected those who collected funds to purchase a house or for own contribution to a mortgage loan. The value of their savings has decreased and today they may not suffice to buy a real estate, even if a year ago the amount was sufficient for purchasing an appropriate flat. The situation may only turn out positive for those who have only just started saving but provided that their salaries have increased.
Due to inflationary pressure, capital deposits have a negative profitability. Currently, the best deposits offered by banks are deposits bearing approx. 1% interest per annum, which is very unfavourable to people who would like to accumulate savings if we take into account more than 5% decrease in the value of money. In order to avoid losses related to a decreased value of money, people who have enough savings decide to buy real estates, even if they do not need them.
Mortgage loans – costs and availability
Mortgage loans intended to finance the purchase of a flat or a house in Poland are subject to statutory requirements in order to protect consumer borrowers. They can be taken only if one has own funds equal to 10% or 20% of the cost of the real estate. At present, such loans are cheap due to very low interest rates – compare top mortgage deals. Effective Annual Percentage Rate of mortgage loans amounts to 2.8 – 4.5%, which means, among other things, that the costs of loans may not be lower than the present amount.
A Polish family with an average income has credit worthiness which offers the possibility to take a loan in the amount of PLN 300,000 – 500,000. Such an amount will be sufficient to buy a flat in medium-sized towns or on the outskirts of the largest cities. Transactional prices of flats exceeded a threshold of PLN 10,000 / sq. m in Warsaw and in Gdańsk, which in practical terms means that a flat with an area of 65 sq. m may cost even more than PLN 700,000.
Forecasts regarding the mortgage market
All experts agree that the prices of mortgage loans will increase. They only cannot be sure how fast this will come and what the upper level of such increases will be. Because the definite majority of loans in Poland accrue variable interest that depends on the interest rates imposed by the National Bank of Poland, an increase in costs will also concern the debt incurred earlier. Mortgage loans taken in 2021 will definitely be more expensive than the current calculations indicate. However, with the available data it cannot be determined how big the differences will be.
Is this the right time to take a mortgage loan?
The answer to the question posed in the title of the article should be divided into three parts:
NO – You had better avoid buying real estate during the period of swift price increases.
YES – You had better take a mortgage loan when it is cheap and easily available.
NO – You had better avoid taking loans which will surely become more expensive.
It is definitely profitable to buy real estate and pay in cash (yet it is not as profitable as it was a year ago). A short-term mortgage loan (e.g. for 10 years) may be a good idea if the borrower needs around 50% of the value of the estate. Long-term debt bears a risk, especially to people who only have 10% of the value of a flat or house as their own contribution. Such borrowers will need to earn more in the future than they do now in order to be able to repay the loan without problems.