The risk of borrowing

Analysts are alarmed that once the bubble in the residential market bursts, Poland might face serious problems related to lifetime mortgages. As property prices have been growing for the past few years and low-interest loans have become more accessible, people are getting more into debt. This is already a problem in countries such as the UK where about one million old-age pensioners are still paying off mortgages they took out years ago. In the US and Australia, 30 percent and 50 percent of OAPs respectively are still paying for their houses.

Apartment prices are not only spiraling in Poland. They have also been growing rapidly in Western countries. The difference is that while in Poland price growth is expected to continue for the next few years, in markets such as the US and the UK, a significant price correction is forecast in the near future, which could cause trouble for banks and loan takers. Bankier.pl quotes a company called Capital Economics, which says that in the next three years property prices in the UK might drop by 20 percent. In recent years many mortgage takers have been using the growing value of their houses to increase the size of their mortgages, spending the extra money on consumption. A sudden price drop could mean that they will owe the bank more than the value of their property. This can lead to increased interest on the mortgage and higher monthly payments.

Bankier.pl claims that this scenario may be expected in Poland in 15-20 years' time, especially if banks in Poland make their mortgage offers more flexible. This would involve banks accepting a wider variety of sources of income from customers and prolonging the maximum period of paying off the loan to 35 or 45 years.