In: Root » Legal and finance » Loans and mortgages
The introduction of the Mortgage Bonds and Mortgage Banks Act of 1997 resulted in the establishment of a new type of bank. The first two mortgage banks were established at the end of 1999 and started their operations in the following year. They were Reinhyp-BRE and HypoVereins followed by the Slaski Bank Hipoteczny in September 2001. Another mortgage bank, Nykredit Bank Hipoteczny, was granted a primary licence and commenced its operations a year later. There were three mortgage banks operating up to 2002. Their total own funds exceeded 400 million PLN and total receivables from customers reached 1.4 billion PLN. Compared to the business of commercial banks the nominal numbers are not very impressive. But, it must be remembered that the history of contemporary mortgage banking in Poland is a short one, and the portfolio was about 25% in 2001-2002. This might be due to fact that the history of contemporary mortgage banking in Poland is a short one. By 2003, the portfolio had reached more than 80% compared with the very low base at the end of 2002. The PLN nominated share of the mortgage loans was only 10% but experiencing modest growth due to the rapid fall in interest rates. The average individual loan had a 20 year term with 30 year term mortgages also available, and a variable interest rate linked to 3, 6 or 12 months' market base rate. As of 2003, mortgage banks had about 3% market share in the total real estate portfolio of Polish banks, which was estimated at PLN 40 billion. The maximum participation of mortgage banks in financing of the housing market was restricted to 1.5%, while their commercial lending level was substantially higher, amounting to 10%. The above results can be disappointing for someone expecting financing and supporting housing lending at the first place. But there are certain reasons for that situation. The Mortgage Bonds and Mortgage Banks Act, especially before change in September 2002, was very restrictive with respect to: • maximum LTV ratio per single loan (80%, later increased to 100%); • average LTV ratio for the whole portfolio (60% + 10% of the total assets secured with mortgages, now increased to 60% + 30%). The actual individual needs for LTV exceeded the average ratio and reached 80% of mortgage-lending value. Exclusion of the cooperative ownership right also reduced the potential market, as that type of ownership is quite common in some places in Poland. On the other hand, commercial banks, avoiding long-term commercial lending, make a natural niche for mortgage banks. All these factors have made commercial lending more effective in building the loans portfolio of mortgage banks.
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