The increase in loan costs is getting closer

A few days ago in Sopot, the European Financial Congress took place. The event was attended by the heads of the most important banks operating on the Polish market. Our attention was drawn by several warnings against the consequences that the NBP may raise interest rates. So bankers started to follow what Trader21 has been paying attention to for several years. Do such statements from the chairmen of banks mean that we will face an imminent increase in loan costs?

The era of zero or record low interest rates has lasted for 8 years and is clearly ending. The FED has already carried out three rate hikes and another one is hanging in the air. Europe is slowly preparing to move in the same direction. The trend will also not affect Poland.

This means that thousands of Poles who are currently paying off their loan for a dozen or so months will pay higher installments. As a reminder: the amount of the loan installment depends on the interest rates and the bank’s fixed margin (in the case of a loan of PLN 300,000 for 30 years, it is on average 2.1%). The main interest rate is now 1.5%, which gives us a total of 3.6%. The problem is that rates are currently at a record low, which is clearly shown in the chart below.

It can not be concealed that the chances for interest rate cuts by the NBP are minimal, while the potential for increases is significant.

So let the new blog readers know what this means, let’s do a little comparison. Take Kowalski, who took out a loan of 300,000 PLN for 30 years.

At present, with an interest rate of 1.5%, Kowalski pays an installment of less than PLN 1,500.

If the rates increase to the long-term average (5%), Kowalski will pay over PLN 2000 a month.

If the rates increase to 10%, Kowalski will pay PLN 3,000 a month!

The difference of over PLN 500 is a lot for most Poles. The above comparison should be taken especially by people who are now considering taking a loan.

The situation of francs

The situation of francs

Since we have already touched upon the topic of loans, it is worth mentioning also the frankowiczes. Many people belonging to this group are currently considering converting loans from Swiss franc to zlotys. In the current situation, this is not the best idea.

The main argument here is the global capital flows, which we have mentioned many times. After eight years of pumping markets in developed countries, capital is slowly shifting to cheaper assets. Since the beginning of 2017, the stock exchanges in Poland, Turkey or several Asian countries have recorded much better results than the US indexes. In our opinion, this trend will continue for the next few years, which will result in the strengthening of the Polish currency – also with regard to the Swiss franc.

Of course, in the event of a bear market (usually 18-24 months) the franc will grow stronger. However, taking into account the perspective of 5-7 years, the Polish currency should stay firmly on its feet.

An increase in interest rates and real estate prices

An increase in interest rates and real estate prices

Low interest rates mean low return on investments. In this situation, many people decide to withdraw money from the bank and look for a profit somewhere else. Very often, the choice falls on properties that are to offer profits much higher than in the case of deposits. Usually this is how it is. However, if the period of low interest rates lasts too long, the number of investments (new flats) is growing strongly and the real estate market is beginning to fill up. This is what the Polish market looks like. Here are some facts:

– In Warsaw, Krakow and Poznan, 50% of the apartments are purchased for the purpose of short-term rental (Trader21 information obtained from three developers)

– The last two years have been record revenues of the hotel sector in Poland. Enthusiasm is growing, and the number of beds in our country over the next two years is to increase by over 30%!

– Prices of short-term rental in Poland are at very high levels today

It must be borne in mind that the dynamic increase in the number of beds we will be witnessing must translate into a decrease in rents in the purchased premises, as well as a drop in their prices. The current wave of shopping is reminiscent of 2007, when Poles were investing with full confidence in old wind farms imported from Germany. I will just add that after 10 years most of them are not even used anymore.

Returning to the property – we have two strong arguments for the approaching end of eldorado on the market. The first of these is a very large number of new investments, which will naturally lead to a drop in the prices of premises and the profitability of renting them. The second factor is interest rate increases. In the case of Poland, the next increase will probably not take place earlier than a year, but with loans for 25-30 years it is only a small consolation.

There is, of course, the other side, or arguments for a good situation on the real estate market in the following years. Firstly, as the Central Statistical Office (GUS) noted, last year more people came to Poland than they left. This situation has not been for decades. What does this mean for the real estate market? Larger population, greater demand, and therefore higher real estate prices.

We expect that the advantage of arriving over the outgoing will be at least maintained in subsequent years. There are several reasons for this:

– We are dealing with the inflow of Ukrainians all the time

– As many as 74% of last year’s “visitors” are Poles returning from emigration. It seems that the reasons for which they returned (including a full-fledged labor market or a drop in security) will still be valid

– More and more people from EU Member States note that in Poland you live safely and carry with the intention of moving to the Vistula. Sounds weird? From the perspective of a large group of Swedes (whose country is heading directly to the Third World group), Poland seems to be a not too distant place that ensures a relatively high level of security

The second argument is important first of all for those who pay back mortgage loans. Well, the Federal Reserve raises interest rates also so that in the event of a downturn in the market it will be able to reduce interest rates again, which may mitigate the effects of the financial crisis. If, therefore, Europe follows the US footsteps and starts raising rates, and then there is a crisis, further increases will be blocked. It is possible that we will return relatively quickly to current levels.Summary

Warnings of bank governors about upcoming interest rate increases should be taken seriously. Their statements confirm that each subsequent increase in loan costs in Poland will strongly affect the domestic market. If possible, people intending to take a loan should abstain or consider fixed-rate loans in the first place. Unfortunately, this second option is widely available mainly in the West. In Poland, the situation looks much worse.

At the end, once again, we repeat our advice for Fantercredit – conversion of credit today does not make sense. The migration of capital from developed to developing countries should naturally contribute to the decline in the CHF value against PLN. Another thing is that the Swiss National Bank itself is constantly working to reduce the value of the currency there.