Global Mortgage Rates: Analyzing the impact of inflation and income on home buyers

As central banks in major economies begin to cut interest rates, a new analysis reveals that homebuyers in certain countries are enjoying the benefits of low mortgage rates alongside relatively high average incomes. This phenomenon raises questions about the relationship between nominal interest rates, inflation, and the real cost of borrowing.

Radoslaw Jodko, a real estate investment expert with RRJ Group, explains that the concept of real mortgage rates is crucial for understanding this dynamic. “The real mortgage interest rate is calculated as the difference between the nominal interest rate and the inflation rate. By subtracting the inflation rate from the nominal mortgage interest rate—set by banks—we obtain a clearer picture of the actual cost for borrowers and the true profitability for lenders,” he says.

A recent study by the BestBrokers team examined real mortgage rates across 62 countries, taking into account not only the consumer price index (CPI) inflation but also real estate prices relative to local average earnings. The results were striking: Sweden, Switzerland, and Spain all reported negative real mortgage rates after adjusting for inflation. However, Jodko clarifies that this does not imply buyers are free from interest payments. “Rather, it shows that the real cost of loans may have declined compared to nominal rates,” he adds.

Focusing on Poland’s position in the global context, the analysis reveals significant disparities in real mortgage interest rates. As of the third quarter of 2024, developing nations like the Dominican Republic exhibit the highest nominal rates. Among larger economies, Mexico ranks third with a real mortgage rate of 7.48 percent, followed by South Africa at 6.55 percent, and Indonesia at 5.73 percent. Poland’s real mortgage rate stands at 5.1 percent, making it one of the higher rates among European countries.

Despite these rates, the Polish real estate market shows resilience. Eurostat data from the second quarter of 2024 indicates that average apartment prices in Poland have seen substantial growth, outperforming other EU nations. Furthermore, analysis from JLL reveals a 9 percent drop in apartment sales across six major metropolitan areas in the third quarter compared to the previous quarter. However, this slowdown is not indicative of a market collapse; apartments continue to sell, albeit with longer sales cycles. In Warsaw and the Tri-City areas, developers are taking an average of 4-5 quarters to sell their inventory, while markets in Wroclaw and Krakow see sales averaging under six quarters. In contrast, Poznań and Łódź experience longer wait times, exceeding two years.

Jodko observes that the current market dynamics suggest a trend where cash buyers dominate. “Today, we see that primarily cash buyers are purchasing real estate, often for personal use. Interestingly, these purchases are not always for first homes; many buyers are acquiring second properties,” he concludes.

This analysis highlights the intricate relationship between mortgage rates, inflation, and economic conditions, suggesting that while nominal rates may be high in some regions, the overall impact on homebuyers can vary significantly based on local economic factors.

Source: Radoslaw Jodko, RRJ Group