For a loan or for cash – how do Poles buy real estate and what is their creditworthiness?

In recent months, the share of transactions in which the purchase is financed with cash has been growing increasingly. According to the latest estimates of the National Bank of Poland, up to two out of three flats purchased in seven largest cities in Poland are financed with own funds. Despite the growing demand on the primary market, we are not observing a parallel boom in the credit market, as was the case in 2005-2008.

One of the reasons

For the growing share of cash transactions is historically low levels of interest rates. This encourages people with considerable cash resources to withdraw them from low-interest bank deposits and look for other alternative investments. One of them is the purchase of real estate for rent.

We observe the development of this market and the high demand for flats that are very popular with tenants in the largest cities in Poland. According to NBP estimates, in the first quarter of this year about 65 percent of purchase transactions were financed from own funds.

At the same time, we note that in the case of people buying an apartment for their own needs, a housing loan is still an important way to finance the purchase. In the second quarter of this year, banks granted the most housing loans for almost 4 years, and in terms of value it was the best result since the fourth quarter of 2011. The lending campaign has been recently supported by the Apartment for Youth program, because one of the conditions for receiving the additional payment is to take out a housing loan.

The results on the credit market

The results on the credit market

Were not weakened by changes in the rules for calculating creditworthiness. At the end of 2015, many institutions radically tightened their procedures, which resulted in a decrease in the amounts available. For example, a family of three earning USD 5,000 net can borrow on average around USD 400,000, where a year ago the available amount under the same assumptions was about USD 50,000 higher. More realistic assumptions about the cost of living have reduced creditworthiness, but they also reduce the risk of over-indebtedness.

Therefore, we can say in a simplified way that people who buy flats for rent most often finance their purchases in cash, while people who buy for their own needs make more use of housing loans.

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