New rules for granting mortgage loans in foreign currency – what is changing and what are the consequences?

The ban on granting foreign currency mortgage loans to people who do not earn in the currency of the loan is not the first change triggered by Good Finance.

Its other important provision says that Polish banks will have to increase the obligatory share of their own contribution in the coming years.

Crediting the purchase or construction of the real estate 

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By the end of December 2014, it will be only 5% of the property value, but in 2015 it will increase to 10%, and in 2016 to 15%. Pursuant to Good Finance, banks should also recommend to retail clients a period of crediting the purchase or construction of real estate not longer than 25 years.

Good Finance entered into force in June 2013, but its individual provisions are being implemented gradually. At the beginning of July this year, it was time to introduce a recommendation on foreign currency loans. What are the provisions of Good Finance in this regard?

“Foreign currency loans, indexed or denominated in foreign currencies, should be a product offered only to customers with stable income in the currency of the loan, ensuring regular servicing and repayment of the loan; in the case of customers (or households) with income in several currencies.

The bank should ensure that the loan currency matches the currency in which the borrower (or household) obtains the highest income from the creditworthiness accepted for the calculation, and in the case of other currencies the bank should assume their depreciation by 20%”

Receive a mortgage in foreign currency

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In short, from July 1, 2014, we will receive a mortgage in foreign currency only if we earn in that currency. Polish banks offer foreign currency loans only in a few major foreign currencies, primarily the euro and the US dollar. This means that in practice only such mortgages will be reasonably available.

An important consequence of these changes, which is little talked about, will be that Polish emigrants who earn on a daily basis in countries such as Great Britain or Germany will not be welcome as borrowers in zlotys. They eventually earn in pounds or USD. Thus, more than 2 million Poles working abroad but planning to return to the country will have much more difficult access to mortgage loans.

On the one hand, real estate loans in Polish zlotys are not for them because they earn income in foreign currencies. On the other hand, Polish banks are not likely to develop foreign currency loan offer, because in Poland few people earn in them.

While it is not difficult to get a mortgage in USD, only one bank (bank) has an (expensive) offer in pounds, and the Swiss franc has virtually disappeared from the market.

The intention of Good Finance in these provisions of Good Finance was to further reduce lending in foreign currency.

This is a radical change in attitude compared to the mortgage boom of 2005-2008 when the standard in Polish banks was granting mortgages in Swiss francs and – to a lesser extent – the euro.

Value of foreign currency mortgage loans

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According to the data of the Good Finance, in 2012 the total value of foreign currency mortgage loans was higher (USD 178 billion) than the value of mortgage loans contracted in USD (USD 143 billion), and the average liabilities on foreign currency loans exceeded USD 100,000 by USD loan.

This means that both the borrowers and the banking system are exposed to a huge risk of exchange rate fluctuations.

Good Finance does not change anything in the situation of people who took loans in foreign currencies a few years ago.

Refers only to future practices of Polish banks, which from July 1, 2014, may grant mortgage loans in foreign currency only to clients earning in the currency of the loan.

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