According to the Mortgage Debt Index (IOH) prepared by the Good Finance, households allocate about 30% of their monthly income to repay the installment of a new mortgage. It is as much as 10 pp less than the maximum recommended by the Polish Financial Supervision Authority.
This is another quarter in which the average Polish family spends less on paying off a mortgage. IOH remains at record low levels. In March 2014, it reached 27.20%. The annual decline was also record-breaking – compared to March 2013, IOH decreased by as much as 14.06%.
What decided about the changes?
Each month, 3 factors affect the amount of IOH – salary, interest rate on loans and the price of real estate. In annual terms, we observed a decrease in the interest rate on housing loans from 5.18% to 4.56%. In addition, the average salary increased over the year – by over PLN 180 on average. In addition, average property prices fell by 0.75% per year, which further aggravated the decline in IOH.
On a quarterly basis, two out of three factors have changed in the direction that should bring a large increase in IOH. Both salaries and real estate prices have changed in a negative way for borrowers within 3 months. With practically unchanged interest rate, IOH in the first quarter should record a large increase, and as we can see compared to the end of the fourth quarter, it has remained virtually unchanged. Why is this happening? The answer to such results lies because in Recommendation S.
Smaller loan, smaller installment
Pursuant to Recommendation S in force since January 2014, the loan may not exceed 95% of the property value. It means that it is not possible to take loans without own contribution. This requirement has also brought changes in IOH values. The payment of obligatory own funds means a lower loan and is reflected in the amount of installments paid.
On the other hand, lower installments translate directly into Index readings and, as a consequence, decreases in its value. Thus, on an annual basis, the convolution of changes favorable for IOH was further deepened by the consequences of Recommendation S.
Unfavorable changes in the Index for average wages
However, on a quarterly basis, unfavorable changes in the Index for average wages and real estate prices were offset by Recommendation S and, as a consequence, practically not compared to the fourth quarter changed.
In the coming months, we will continue to observe large drops in IOH on an annual basis, because in this perspective Recommendation S will continue to work on large falls in IOH. On the other hand, in quarterly terms, the IOH values will depend only on changes in interest, average remuneration and real estate prices.