WIBOR up, mortgage rates holding steady
Mortgage lending rates so far have resisted upward pressure on interest rates as bankers take a wait-and-see approach to the central bank's efforts to respond to inflation worries. But market watchers expressed concern about the current trend, at the same time saying it was probably too early to tell what effect, if any, the upward pressure would have on sales and property values.
Over two months, the three-month Warsaw Interbank Offer Rate (WIBOR), a key benchmark for corporate and mortgage lending, has risen from the 13.6% level in early September to 18.66% on Nov. 5 (See Money Market table, page 5).
"This is a deep crash," said Lech Gajewski, executive director with Bank Slaski. The sharp increase in WIBOR rates is the first-ever significant increase since the market economy was introduced to Poland, Gajewski said. "There has never been a move like this," he said.
If the current rate persists, the home loan market, forecast to reach zl. 4.5 billion ($1.07 billion) by year's end, could be hit, Gajewski said. However, there's still time for the trend to reverse, he said. "There is no justification for such a high rate," Gajewski said.
The current, two-month spike in WIBOR rates represents a more than 40% increase in the cost of credit, which still has to be felt by consumers. Some said, however, it was just a matter of time.
"It's a bad omen," said Bo Adolfsson, director of the residential division of Swedish developer Skanska. To date, sales are good and there's been no effect from the rising interest rates. "So far we haven't felt it, it's too early," Adolfsson said.
But growing interest rates and the weakening zloty will soon affect residential sales, he said. "For people who borrow money it will be more expensive," Adolfsson said. "I expect some people will hesitate."
As yet, however, bankers have generally restrained from passing on their hike in cost of funds to the nation's mortgage market. During the same September-November period, mortgage loans have remained relatively stable for specific banks and credit terms, within the 16-20% range.
That's due in part to the fledgling character of the mortgage market and the desire to avoid knee-jerk reactions to short-term spikes, bankers said. How long the current spike will last is unclear, they said. For example, although WIBOR peaked above 18.6% Nov. 5, interbank lending rates were on their way down last week, fixing at 18.27% on Tuesday, Nov. 9. In the broader view, rates today are well below the 21%-plus level that bankers charged for mortgage loans a year ago.
"Generally speaking credit is expensive," said Waldemar Kania, head of Mansion House agency. And the mortgage loan market has never really taken off, he said.
The current WIBOR increase, if passed on to mortgage loans, likely won't discourage buyers, he said. "Clients take loans that are a small portion of total property value," he said. Thus while rates may increase, it won't significantly affect the overall cost of buying a house, Kania said.
The recent climb in the WIBOR follows a general downward trend over the past year as inflation continued its move down over the past 18 months. But in September, the Monetary Council Policy (RPP) responded to a spike in prices with a boost in the intervention rate on 28-day loans from 13% to 14%. That one percentage point hike soon hit the WIBOR, the rate banks charge each other for short-term, zloty-denominated loans.
Benchmarks for lending in foreign currency have also increased, but the impact, if any, on the Polish mortgage market is less significant, market watchers said. That's largely because zloty-based loans dominate the domestic home financing market, they said. The six-month, London Interbank Offer Rate (LIBOR) has risen to 6.064% from 5.895% since early September.
