Two Polish banks have suspended the sale of floating-rate mortgages, effectively locking in peak rates in a fresh challenge for the country’s home owners.
(Bloomberg) — Two Polish banks have suspended the sale of floating-rate mortgages, effectively locking in peak rates in a fresh challenge for the country’s home owners.
BNP Paribas Bank Polska SA, the sixth-biggest lender by assets, announced a “temporary halt” on variable-rate home loans this week, and will instead only sell mortgages with rates fixed for five or 10 years. ING Bank Slaski SA, Poland’s No. 4 bank, made a similar move in December.
Polish mortgage rates are among the highest in the European Union after the most aggressive monetary tightening in its history to rein in surging inflation. But consumers might now be locked into these high levels just as financing costs are set to decline.
After official interest rates jumped 665 basis points in less than a year, payments in some cases more than doubled and sales of new home loans tumbled nearly 50% last year. To relieve the pain, Prime Minister Mateusz Morawiecki’s government offered mortgage moratoriums, which will remain in place in 2023.
Market prices are now implying that the first rate cuts will come toward the end of this year. PKO Bank Polski SA expects the central bank to trim rates by 50 basis points. The country’s largest lender is offering both types of mortgages for now, but doesn’t rule out that its approach will change in the future, PKO said in an email.
Poles exposed to rate hikes started to opt for fixed-rate loans or even asked to switch existing mortgages from floating contracts. As a result, the share of variable-interest loans in new sales fell to about 50% last year after being the overwhelmingly dominant financing contract for more than a decade, according to data from the European Central Bank.
But those fixed rates could now become a trap for the country’s beleaguered home buyers, many of whom suffered from being sold loans denominated in Swiss francs before the financial crisis.
“Banks indeed face some reputation challenges as they limit their offer when interest rates are peaking,” said Lukasz Janczak, an analyst at Erste Group Bank SA. “But clients learned a painful lesson and may accept a bit higher cost.”
Variable-rate mortgages will likely still be offered, but to a smaller group of customers that can handle the risk, Janczak added.
Both BNP and ING said they will again offer floating-rate loans after the country implements a new interbank lending benchmark, a process set to take place over the next two years. The banks didn’t give a precise time frame for when they would again broaden their mortgage offerings.
For BNP, the decision will depend on how quickly the derivatives market will be ready to adopt new rates. “Our decision is aimed at limiting potential risks and doubts related to the change of the benchmark,” the bank said in an email, adding that the interest on fixed-rate mortgages is now about 80 basis points below the floating-rate ones.
–With assistance from Piotr Skolimowski.
(Updates with PKO, BNP comments from 5th paragraph.)
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