From autumn 2022, mortgage loans in Poland are very expensive. The basic rate is 5.75 percent, which is still a lot. Recently, however, representatives of the Monetary Policy Council are increasingly signaling that the reduction of the feet is fast approaching. There were even suggestions that it could be in May. How could a possible cut by 50 base points translate into loan installments? Experts of the Gethome.pl portal decided to check it.
However, before we answer the above question, the dynamics of events should be recalled. This was characterized by great intensity. From 2015, borrowers in Poland have used cheap money. After a series of interest rates, the reference rate was record -breaking low – 1.5 percent. After five years of low interest rate, however, Covid -19 Pandemia came and it turned out that it could be even cheaper. In the spring of 2020, the Monetary Policy Council decided to cut almost to zero. The basic rate was 0.10 percent.
NBP shock therapy
This state of affairs meant another shift on the record low interest rates. However, later, when the economy began to dig into inflation, the NBP decided to brake and shock therapy for borrowers. From autumn 2021, feet began to grow again at incredible speed. In just a year, from almost zero, they increased to 6.75 percent.
The effects were devastating for paying loans, as well as people who were just applying for a loan. The latter, both in view of the dynamic increase in interest rates and the exacerbation of the criteria for counting creditworthiness, began to fall out of the market in hundreds of thousands. The former, however, received installments in the amount of often by 100 percent. larger than a year earlier.
We can illustrate this on an illustrative calculation. Let's assume that it is a loan for 30 years, in the amount of PLN 500,000, with a margin of 2 percent. and a zero commission, in addition, WIBOR equal to the height of the reference foot.
Before a series of increases, the installment equal to such a liability was about PLN 1870 on average, but after the interest rate increase cycle, with a reference rate of 6.75 percent, our model borrower had already to repay PLN 3,900. The installment increased by over 100 percent.
It is true that in autumn 2023 borrowers got a slight breath. The Monetary Policy Council then cut the main foot of the NBP by 1 point. percent to the current level of 5.75 percent If our model borrower at such an interest rate took out a loan for 500,000 for 30 years, he would pay installments equal to PLN 3,580, which still means a higher installment by over 85 percent. compared to 2021. The total cost to be repaid with interest is nearly PLN 1.3 million.
How much lighter?
Based on the announcements of representatives of the Monetary Policy Council, it can be assumed that everything indicates that the first time in a year and a half the reference rate will go down again and it can happen in May. This is how Ludwik Kotecki, one of the MPP members recently suggested in the media. In turn, the head of Central Bank Marek Glapiński said that next year the NBP reference rate could drop to 3.5 percent.
If such a scenario would work, what does it mean for Kowalski's pocket paying off his PLN 500,000 loan?
Assuming that in May there would be a cutting, then the reference rate would be 5.25 percent, and the loan installment would drop to PLN 3410, and therefore would decrease by about PLN 170. If this year there would be another reduction of 0.50 points. percent, then the installment of our model loan would be PLN 3,242, i.e. PLN 338 less, which gives over PLN 4,000 savings per year, and the total amount of loan to be repaid (including interest) in a 30-year perspective would be lower by 120,000.
However, if the words of the President of the NBP were prophetic and already in 2026 the reference rate of loans in Poland would be 3.5 percent, then this gives an interest rate with a two -percent margin of 5.5 percent, i.e. by 2.25 points. percent lower than today.
In such a variant, the model Kowalski, which was indebted for 30 years for the amount of PLN 500,000, would pay installments equal to PLN 2,800 per month, and the total amount to be repaid with interest would be just over a million zlotys. Thus, the cost of the loan at zero percent margin compared to today's state would decrease by as much as PLN 289 thousand.
Will there be a happy end?
No wonder that many borrowers are waiting for cutting interest rates. Poland has one of the highest interest rates in the European Union. However, this time will we be able to carry out a whole series of reductions or, despite the announcements, will we be dealing with a substitute or temporary action again? It's hard to forecast at the moment. Without assuming a pessimistic scenario, however, you need to take into account a number of conditions and generally a very dynamically changing geopolitical and macroeconomic environment on a global scale.
Author: Marcin Moneta, expert of the Gethome.pl portal
