Help for borrowers due to rising interest rates – proposed solutions
The alarming rise in interest rates has been recorded continuously since October 2021, and the government is already announcing further increases, as this is the Monetary Policy Council's main tool aimed at countering inflation. It is worth noting that between December 2021 and May 2022, the reference rate increased from 0.5% to 5.25%. This has a noticeable impact on borrowers with mortgage liabilities in złoty, often making them extremely burdensome or even beyond their financial capabilities.
In an effort to address the further deterioration of the situation, on May 17, 2022, the government adopted a draft law on crowdfunding for business ventures and assistance to borrowers. This bill aims to assist mortgage borrowers with debt in Polish currency in repaying their ever-increasing loan installments. The draft law proposes:
- the possibility of granting credit holidays to borrowers,
- financial support from the Borrowers Support Fund,
- eliminating the WIBOR index and replacing it with a more affordable measure for borrowers.
The completed bill – according to the Prime Minister’s declaration – would enter into force at the beginning of July 2022. July 2022 would be the first month in which borrowers would be able to take advantage of the loan repayment holiday, but currently borrowers can already use the Borrower Support Fund.
The most far-reaching of the proposed solutions is the replacement of the WIBOR index with a new, more affordable index for borrowers, which is scheduled for January 1, 2023.
Credit holidays
Most likely, beginning in early July 2022, mortgage borrowers with PLN-denominated loans will be able to take advantage of a two-month repayment holiday in the third and fourth quarters of 2022 and one month in each quarter of 2023. The holiday would cover both the principal and interest portions of the loan. Mortgage borrowers will be eligible for this option, but only for a single loan agreement concluded for the purchase of real estate intended to meet housing needs.
Borrowers who meet two conditions will be entitled to benefit from the repayment holiday:
a) they will conclude a mortgage loan agreement before 1 July 2022 and,
b) they will end the loan period at least 6 months after the above-mentioned date;
If the borrower is already using credit holidays previously agreed with the bank and submits an application for the holidays under the new regulations, the period of the former will be shortened when a new application is submitted to the lender.
Borrower Support Fund
The second proposed solution is the possibility of obtaining subsidies from the Borrower Support Fund. To qualify, the borrower must meet at least one of the following conditions:
- at least one of the borrowers is unemployed,
- monthly housing loan servicing costs exceed 50% of monthly income,
- monthly income after deducting loan costs does not exceed a certain amount – in 2022 it is PLN 1,552 in a single-person household and PLN 1,200 per person in a multi-person household.
The amount of assistance from the FWK cannot exceed PLN 2,000 per month and can be paid for a maximum of 36 months. The benefit is repayable, and its repayment begins two years after the last FWK benefit is received. Repayment is made in 144 equal, interest-free monthly installments, of which a portion (44 installments) can be waived. These installments are waived when the borrower repays the first 100 installments on time.
New interest rate in place of WIBOR
Rising interest rates also affect the WIBOR index, which in turn increases loan installments. Therefore, at the beginning of 2023, WIBOR is planned to be replaced with another index that will lower loan installments. Currently, its replacement is unknown, and the financial sector has committed to developing its own. Unofficial reports indicate that this index would be based on one of the following indices: the Warsaw Deposit Market Index (WIRD), the Warsaw Financial Market Index (WIRF), and the Warsaw Repo Rate (WRR).
