The decision of the Monetary Policy Council to raise interest rates again means that mortgage loan installments will increase. For some borrowers, the costs can become unsustainable quickly. This has consequences for the real estate market. It is also worth asking yourself: are we preparing a repeat of the Frankowicz family?
Interest rate increases mean that some people are unable to pay back installments for the purchased apartments
Radio TOK FM has recently noticed a very important consequence of interest rate increases. The situation of owners of flats bought on credit changed rapidly. Mortgage rates have increased drastically. Thus, some apartment owners may not be able to cope with the need to pay back an increasing amount of loans every month.
The guest of TOK FM, Adam Czerniak from Polityka Insight and the Warsaw School of Economics, argues that there are already people claiming that the bank has deceived them. After all, installments were not supposed to increase, not to such an extent, at least. Sounds familiar? At first glance, the situation of people taking out mortgage loans during the period of almost zero interest rates resembles the case of the Franks.
Mortgage loan installments can also increase significantly in this case. Adam Czerniak presented calculations for a 50-square meter apartment in Warsaw, with a 20% own contribution, taken out with the cheapest loan. In this case, the installment will increase by even half. For the majority of such loans, this is an increase of over PLN 1,000. zlotys.
In addition, it is worth taking an amendment to the entire economic situation in the country. Energy and fuel prices are rising, along with practically the entire cost of living in Poland. Building materials and elements of equipment in a new flat are also going more expensive.
From the viewpoint of real estate market we should now expect more apartment sale offers. It is from those investors who are unable to pay off the loan taken out to buy a flat. This phenomenon, of course, does not mean a permanent decline in prices, especially in the largest cities, but may slow it down for a while.
It is worth considering now whether we are really dealing with the other Frankowiczs? At first glance, there are quite a few similarities. The similarity, however, can be deceiving.
Today’s high mortgage installments are simply out of luck for investors
In both cases, we are dealing largely with small investors who want to take advantage of the opportunity to improve their economic situation. Just ordinary people and not some bloodthirsty financial sharks. The means to an end was a cheap loan – once in a foreign currency, today low-interest thanks to low interest rates.
Both Frankivichi, as well as today’s unlucky investors, saw a sudden change in circumstances. Who could have expected that in 2015 the Swiss National Bank would suddenly release the franc from dependence on the euro exchange rate? Who else could have expected that the pandemic would bring an economic collapse and record inflation that would eventually force the Monetary Policy Council to raise interest rates? The Swiss franc exchange rate was very stable for many years, as were the interest rates in Poland.
There is, of course, a difference. In the case of the Frankowicze, we know that banks deceived their clients by using abusive clauses in their contracts, and therefore contrary to the law. We know this thanks to the judgments of courts that increasingly decide to annul such loan agreements. It is worth recalling this every time before someone says that the Franks were to blame for themselves.
Meanwhile, at the moment, there are no indications that there may be anything wrong with the mortgage loans concluded now. It would also be difficult to blame the state authorities here. Indeed, recent announcements from the NBP president suggested a completely different development of events. Inflation was also long underestimated by the government. It cannot be ignored, however, that the Monetary Policy Council would be forced to raise interest rates sooner or later anyway. Unless we are interested in the Turkish scenario and galloping inflation of 36%.
It therefore seems that the current high mortgage installments are part of the risk that investing always involves. Unfortunately, not every investment pays off. Unforeseen circumstances turn the “sure” and “safe” upside down. In this respect, we are all in the same wheelchair today.
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