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Record drops, the loan is getting cheaper

The average Polish family spends less and less of their salary on servicing a new loan. Mortgage Load Index (IOH) prepared by Loan and Credit reached their minimums and at the end of 2013 was 27.05%.

During the year, it fell by 5.69 pp, and this was mainly due to the decisions of the Monetary Policy Council to lower interest rates. In the sequence, the cost of credit and installments paid decreased.

What decided about the changes?

The decline in the Mortgage Load Index on an annual basis was primarily due to lower loan servicing costs. The cycle of interest rate reductions made by the Monetary Policy Council caused the reduction of the Wibor rate significant for borrowers by over 1.5 percentage point in the 12 analyzed months.

Despite a slight increase in loan spreads, the interest rate on loans decreased, strongly affecting the reduction of IOH. Also, other factors affecting the Index readings did not reverse the trend, but even deepened it. The average salary within 12 months increased, and the average offer prices of the analyzed properties practically did not change.

Slightly different reasons determined the decrease of IOH on a quarterly basis. In this case, the decisive factor was the sharp increase in salary in December 2013, but it must be remembered that this is a trend observed every year. In connection with the payment of annual bonuses, bonuses and allowances every year, last month we note higher salaries. Therefore, taking into account the above, an increase in the value of IOH should be expected in January and subsequent months of 2014.

Declines in all cities

Declines in all cities

The IOH index declined in all locations throughout the year and the quarter, but its scale is different. Within 12 months it fell most in Krakow and Wrocław. Such distinctive changes resulted from the accumulation of positive changes in all factors. In addition to the relatively large increase in salaries in Krakow and Wroclaw, we recorded a fall in the offer price of flats by 4.51% and 3.50% per year, respectively.

Despite such a large decline in IOH, the capital of Lesser Poland still remains one of the leaders and, apart from Poznań, is the city where IOH is the highest. Wrocław was out of the top for that, but it can be assumed that it is temporary. The large decrease in IOH is due to the large increase in wages in December, so in January, after taking into account the seasonality of income growth, IOH is likely to increase to a greater extent in the capital of Lower Silesia than in other cities.

Index methodology

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 (Kraków, Tricity, Wrocław, Poznań, Katowice, Łódź, Warsaw), 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.