POLAND LETS HOMEOWNERS STOP PAYING MORTGAGES

To ease inflation’s pressure on households, Poland’s government is allowing homeowners to skip mortgage payments for up to four months this year and another four in 2023.

More than 500,000 homeowners in the country took advantage of the program within two days of its opening, according to the website Notes From Poland.

The country’s central bank has raised interest rates to 6 percent, the highest since 2008, to rein back inflation that ran at 15.5 percent in June, the fastest pace in 25 years.

As a result, families with adjustable mortgage rates have seen their monthly payments rise as much as 70 percent.

“Our mortgage has become terrifying,” one homeowner told the Financial Times.

If all qualified homeowners halt their mortgage payments for the full eight months, Poland’s banks would lose the equivalent of $4.1 billion in cash flow over the next 18 months, the banks have calculated.

Commerzbank estimates that as many as 70 percent of its mortgage customers will take advantage of the suspension.

Adjustable-rate mortgages make up the majority of home loans in Finland, Portugal, and Romania as well as Poland, and more than 20 percent in Spain and Sweden, according to the FT.

While Poland’s homeowners are breathing a sigh of relief, banks are howling in protest.

Polish bankers say that suspending mortgage payments for eight of the next 24 months will erase their profits for the period.

They allege that government officials have granted the payments holiday to boost their chances of being re-elected next year.

As if suspending mortgage payments was not hard enough on banks, Poland’s governing Law and Justice political party has suggested a windfall tax on banks that fail to pay higher interest on deposits.

Banks have become one of governments’ favorite targets as inflation ravages people’s finances.

Spain has announced it will now tax banks €1.5 billion a year; Hungary has levied €2 billion in windfall taxes on lenders and energy companies; and Romania is mulling a mortgage holiday similar to Poland’s.

The government’s gift to Polish mortgage borrowers may not be as generous as it seems, analysts said to the FT.

“Banks may become more selective in offering financing,” economist Marcin Kujawski at BNP Paribas’ Polish office said in an FT interview.

The suspension “may lead to tighter credit policies, as well as more entrenched inflation, which possibly require more interest rate hikes than otherwise would be the case,” he added.

However, Polish banks have the financial strength to weather eight months of missing mortgage payments, according to Prcemyslaw Paprotny, who leads PwC’s financial practice in Poland.

“We don’t foresee any dramatic situation that would call for discussions about immediate capital injections,” he said to the FT. 

TREND FORECAST: Unreported by FT is the fact that Poland is playing a seriously dangerous role in its support of neighboring Ukraine, the sending of military equipment to Ukraine to fight the Russians and the socioeconomic impact it is having on the Polish nation… including a refugee crisis.

Therefore, the nation will be moving into Dragflation: declining economic growth and rising inflation.

Thus, delaying payments is not only hard on banks but also hard on consumers when they have to pay the extra interest that builds up during the payment holiday.

Though popular in the short term, payment holidays stockpile additional financial pain to be felt later.