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III quarter 2012: Mortgage with a smaller burden on the household budget

The Mortgage Load Index values ​​are particularly important for people planning to buy real estate and take out a loan. The readings in the following months show how much of the family’s net income must be allocated to servicing the newly incurred loan obligation. The currently binding Recommendation T of the Polish Financial Supervision Authority says that “the maximum level of the ratio of expenditure related to servicing credit obligations to average net income achieved by persons obliged to repay the debt should not be higher than 50% for retail clients with net income not exceeding the level of average remuneration in economy, but in no case should it be higher than 65%. ” Although announced changes in both T and S Recommendations may change these limits or completely abolish them, they should still be an indicator for customers regarding the acceptable level of expenditure.

What decided about the changes?

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Two factors determined the fall in the Mortgage Load Index from July to September. This was largely determined by the decline in the average offer prices of the analyzed properties. In the analyzed period, the average price of a flat fell by 2.79% in the 7 largest Polish agglomerations. In addition, the reduced interest rate on housing loans also affects the decline in IOH. Although the loan margins increased in the third quarter, due to the decrease in the Wibor rate, the total interest rate decreased. 

Also in annual terms, IOH fell and was a change of over 5 percent. However, in this case, other factors determined the favorable direction than in the third quarter. In addition to the fall in property prices, the fall in the ratio over the past 12 months was also due to salary increases. Although wages have fallen in the last quarter, the average wage has increased by 1.64% over the past year. Combined with a decrease in average offer prices by more than 6 percent, these factors determined the decrease in IOH also on an annual basis, despite the unfavorable increase in interest rates on loans since September 2011.

Great variation in regions

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Traditionally, as every quarter, IOH achieved its highest values ​​in Krakow (42.75%) and Poznań (41.93%), and the lowest was in Katol (28.52%). However, the inhabitants of the capital of Upper Silesia should not have reason to be satisfied, because only in Katol and Warlok the index was higher than three months ago. The drop in IOH in Upper Silesia was influenced by a large drop in salaries (8.4%) with almost unchanged level of real estate prices. Even greater decline in the average salary in the Lower Silesian Voivodship (13.4%) resulted in higher IOH readings in Warlok despite the fall in real estate prices. In the capital of Lower Silesia, the average price of the analyzed apartments dropped by almost 6% by 3Q.

Index methodology

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The Mortgage Debit Index shows how much of Polish families’ net income is absorbed in repayment of a new mortgage. IOH is prepared as an average for the 7 largest Polish agglomerations assuming that a loan for 30 years for the purchase of a 55-meter flat is taken by a family of two, earning twice the average monthly salary in the enterprise sector for a given province. The index is also calculated as the average for loans with LTV (loan to value) at the level of 100 and 80. The following factors have an impact on IOH: offer prices of flats on the primary market for a given agglomeration, the level of average net remuneration in a given voivodship and the current loan interest rate. The basis for the prices of flats used in the construction of the index are the data provided by redNet Consulting on the basis of the Appol The index is prepared with an approximately one month delay compared to the end of the quarterly reporting period adopted by Kredytowy Snark, as the data of the Central Statistical Office on remuneration in individual voivodships are available only at the end of the month, which follows the month to which they refer.

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