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Mortgages have been cheaper, but not for a long time.

July 2018/

Some of the banks in the summer, despite the increase in Czech National Bank (CNB) rates, slightly reduced mortgages. Banks are trying to attract as many clients as possible before the stricter rules are introduced in October.

Many people will not be able to reach the mortgage because of the harder mortgage conditions. Experts point out that current downward movements in interest rates are more or less just cosmetic adjustments, which are soon shifting the wave of further price increases. "Some banks have come up with special offers this year before October restrictions are applied by CNB, and clients are now attracted with these offers concerning of an increase of rates at the end of the year, "Jiri Houška, a mortgage expert at Pravo, told. As he added, some banks have only prolonged spring sale mortgage offers.

In June, the average mortgage rate increased slightly for the first time this year to 2.49 percent from 2.51 percent in May. At the beginning of the year, according to Finner Hypoindex, it was 2.28 percent, at a minimum of 1.77 percent in December 2016.

The volume of new mortgages was highest in June over the past six months. In June, banks closed 9030 contracts for 19.38 billion Czech crowns.  "The continuing spring sales offers were gradually turning to summer and led to a moderate increase in average rates in June. Although the CNB raised its key interest rates at the end of June, it does not seem that the banks would respond to this move , "said lead analyst Fincentrum Josef Rajdl.

However, mortgage clients are not sure what to expect from the coming months. Central Group spokesperson Marcela Fialková said that the developer is currently experiencing higher demand for people who want to get a mortgage before the CNB has introduced more stringent conditions.

Fight for market share

Some banks, according to Cyrrus analyst Lukáš Kovanda, felt the opportunity to increase their market share during the summer. For example, Česká spořitelna has cut mortgages with a five-, eight- and ten-year fixation by 0.2%.

The CNB has previously recommended banks not to provide mortgages above 90 per cent of the LTV (loan-to-value ratio).

More stringent rules should start to apply from this October. Banks should also refuse applicants whose debt would exceed nine times its annual net income. Mortgage seekers should also spend up to 45 percent of their monthly net income on repayments of all their debts. The CNB, with its recommendations, intends to reduce the indebtedness of mortgages and to cool the overheated market with record-expensive real estate. Due to the new CNB rules and higher rates, which have raised monthly payments, the number of people, especially youngsters, who have been able to negotiate it without difficulty, can no longer reach the mortgage. "Relatively strong demand for mortgages can be expected after June," said Cyrrus chief economist Lukáš Kovanda. Mortgage pricing is, of course, only temporary,

Too long fixation does not have to be paid off

According to Kovanda, as well as other economists, it is likely that the average rate on mortgages will close to three percent by the end. "We plan to increase mortgage rates in the second half of this year by raising the interest rates by the CNB and by tightening mortgage rules to three percent," said Next Finance Marketa Šichtařová, an analyst at Next Finance.

In the short term, it may be beneficial to fix the rate.  "On the other hand, we expect the growth of the Czech economy to weaken, which will not only end the process of raising the CNB's interest rates, but mortgage rise will eventually hit its ceiling, so we would not go into longer fixations of mortgages, such as 8 or 10 years, "says Sichtarova.

Due to the increase in CNB rates and the tightening of the rules, the average mortgage rate will rise to three per cent, according to Marketa Šichtařová.

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