Mortgage. Check how much credit you can get

Poor data on the state of the economy and low inflation forced the Monetary Policy Council to carry out a cycle of interest rate cuts. As a result, the interest rate on loans decreased. Housing prices are also falling. All this means that both current and future borrowers are in a good position.

In addition to the fact that the loan installments will be lower, people planning to buy real estate will be able to get a higher loan than before.

IntMoney in cooperation with Credit Daddy Mrs. Drundy checked the credit standing at banks. See what credit a family of three can get, and what single.

In the period from November to March, the Monetary Policy Council cut interest rates by 150 basis points, thanks to which WIBOR 3M, which in most banks constitutes the base rate for interest, fell by 31.38% in the last 6 months, reaching 3.39%. This caused that the mortgage interest rate also decreased and in the last quarter of 2012 amounted to 4.48% (according to NBP data), despite the fact that mortgage loan margins increased in some banks by over 50% in the last year.

A lower interest rate mainly affects the reduction of the loan installment, but also indirectly increases the creditworthiness. In the case of a loan for 300,000 dollars for 30 years with a margin of 1.5%, each reduction in interest rate by 0.25 pp causes the installment to fall by approximately $ 50.


Income is not everything

Income is not everything

What affects creditworthiness? There are many factors that determine the maximum amount of mortgage applicants can receive. Some of them are common to all banks, others depend on the internal policy and the bank’s credit granting procedure.

In addition to obvious parameters such as income and liabilities, creditworthiness is also affected by:

  • number of borrowers – each additional person joining the loan reduces creditworthiness, as the cost of living assumed by the bank increases. Of course, if the person earns income, his credit standing improves;
  • non-credit obligations – any monthly commitment, even if it is not related to loan repayment, may reduce your credit standing. These can be, for example, maintenance payments. Some banks also take into account insurance premiums and even regular saving programs;
  • loan period – the longer, the lower the installment, and hence the higher the creditworthiness. Pursuant to the regulations currently in force, the maximum lending period that banks can accept is 25 years;
  • banks’ pricing policy (margin) – this is the remuneration that the bank charges for granting a loan. It is a component of the loan interest rate. Most often it is permanent and guaranteed in the loan agreement. Its amount depends on the bank’s findings, and when determining it, various factors are taken into account, e.g. the risk associated with granting the loan;
  • interest rates (base rate) – this is the second, after the margin, element that makes up the interest rate is the base rate. In most banks it is WIBOR 3M. The interest rate set by the Monetary Policy Council has the greatest impact on its quotations;
  • recommendations – when setting the policy for granting loans, banks should be guided by the recommendations included in the recommendations prepared by the PFSA. According to them, the borrowers’ liabilities may not exceed 50% of their income, and in the case of people earning more than the national average – 65% of income. In addition, creditworthiness is currently calculated for a maximum of 25 years. However, the Polish Financial Supervision Authority plans to introduce new, relaxed guidelines;
  • own contribution – banks use margin grids. It depends on the LTV level (loan amount in relation to the value of collateral). The lower the loan in relation to the value of the property, the cheaper. And this again reduces the installment and increases the capacity;
  • age of borrowers – in accordance with applicable recommendations, banks are required to take into account the decline in income after reaching retirement age. In addition, the borrower’s age and loan term may not normally exceed 70 years;
  • costs of maintaining the property – banks usually adopt their minimums, which are usually lower than the actual cost of maintaining the property. Their amount often depends on the location of the property. Therefore, a borrower from Warsaw may have lower capacity than a person from a smaller town with the same income and liabilities;
  • cross-selling – is the bank’s offering of other products, such as accounts, payment cards, insurance, or savings programs. When choosing an additional bank product, you can usually count on a reduction in the margin or commission for launching the loan. This translates into a lower installment and, as a result, a higher loan amount. It should be borne in mind, however, that additional costs are associated with the borrower’s part of these products;
  • possessed savings – the accumulated assets means that the applicant may become a client from a reduced risk group, and thus obtain a loan on more attractive terms. If the additional funds accumulated are paid to the bank that will grant the loan, the interest rate may be further reduced by using other bank products.


Higher ability due to lower installments

Higher ability due to lower installments

Recent months have brought significant improvements in creditworthiness calculation. Since July 2012, when WIBOR 3M recorded its last maximum, loan amounts available to customers increased by approximately 10 percent. If you buy an apartment in a smaller town, where property prices are lower, it may even mean that you can buy an apartment a few meters larger.

The recent increase in creditworthiness is mainly due to the decrease in the Wibor rate. We have hardly seen any liberalization of lending policy in any bank, so higher creditworthiness is due only to lower interest rates. The fall in the loan price would be even deeper if it were not for the banks’ pricing policy. Recently, loan spreads have increased and the deep decline in Wibór has been slightly offset. If the loan spreads did not increase so much, then the creditworthiness of Poles would be even higher.

The available amounts should also increase in the near future. We can count on it when the S Recommendation is liberalized. According to the proposal of the Polish Financial Supervision Authority, creditworthiness will be calculated for a maximum loan period of 30 years, i.e. 5 years longer than before. According to our calculations, this should translate into an increase of the maximum loan amounts by another 6-8 percent.


Better prospects?

Better prospects?

The T recommendation has been amended, thanks to which banks will be able to independently determine the DtI ratio – i.e. the amount of liabilities in relation to income, which will most likely result in a relaxation of the current procedures. In addition, it is also expected to update the provisions of the S recommendation, thanks to which banks, counting their creditworthiness, will not have to limit the loan period to the current 25

At the next MPC meetings, further interest rate cuts are unlikely, however, there is more and more speculation regarding the possibility of further cuts in June or July. If this happens at all, then a correction of a maximum of 25 basis points can be expected. The statements of the MPC chairman at conferences ending each meeting may also be of great importance. The tone of the statement makes it possible to forecast future council decisions. Discounting by the market even an informal announcement of another reduction may result in a strong decrease in WIBOR rate

On the other hand, the high cost of raising money and the increasing risk may cause banks to continue to increase their margin, which will offset the decrease in the base rate.


Research methodology

Research methodology

In the first case, a married couple with a dependent child joins the loan. Borrowers are 35 years old; their total income is twice the average wage in the enterprise sector ($ 7,419.98 gross according to data for February 2013); they repay the loan installment in the amount of $ 300 a month (cash loan in the amount of $ 5,000 with an interest rate of 9.9% taken for a period of 18 months); they also have a credit card with a 5,000 limit USD and the average monthly use of the limit of 1 thousand dollars.

The second borrower is a single 30-year-old earning an average income in the enterprise sector ($ 3,709.99 gross per month according to data for February 2013). Has a credit card limit of 2,000 dollars with an average usage of $ 500 per month.

Creditworthiness was calculated on the basis of bank calculators in force in March 2013, assuming that:

  • customers are not bank customers (offer for new customers),
  • customers will benefit from low-cost bank products, such as an account with a guaranteed salary receipt or credit card,
  • credit-related fees are not credited,
  • customers have a 20% own contribution.