CNB lowers rates, but does not make mortgages cheaper

At its meeting at the beginning of May, the CNB Board reduced its base rate by half a percentage point to 5.25 percent. While this year it already lowered it by 1.5 percentage points, according to Swiss Life Select analyst Jiří Sýkora, banks reduced interest rates on mortgage loans by only half a percentage point. “The road to cheaper mortgages, and thus more affordable housing, is still full of potholes,” he pointed out.

Sýkora mainly explains the slight, gradual discounting of mortgages by the fact that banks create a cushion for cases where the client pays off the loan early. From September, banks will be able to charge a fee of 0.25 percent of the early repaid portion of the loan for each year that has begun remaining until the end of the rate fixation for early repayment of the mortgage during the period of rate fixation.

However, no more than one percent. The banks demanded that the penalty be two percent. Even so, depending on the amount of the early repayment, they will collect tens of thousands of crowns, while so far they can only ask for the payment of justified administrative costs in the order of one hundred crowns.

You can get a significantly cheaper mortgage by switching to another bank. Even the fine is worth it

Finance

From the beginning of September, however, this will only apply to contracts that will be negotiated after this date, whether they are new mortgage loans, refinancing mortgages, or refixing rates. According to experts, refixing a mortgage can now pay off for a number of people.

Experts expect a greater influx of demand for mortgages in the coming weeks and months. “Clients want to take advantage of a relatively favorable situation when interest rates are falling, but at the same time real estate prices are not increasing dramatically. At the same time, they are also influenced by the fact that by signing before September 1, they will still be securing the existing conditions for the mortgage,” noted Sirius Finance analyst Lucie Drásalová.

According to her, interest rates for final mortgage applicants will ultimately not decrease as quickly as experts expected after the first quarter of this year. “Due to the increase in money prices on the interbank market, banks will be more cautious in cutting more sharply. So I wouldn’t expect a major reduction in rates until the summer. At the end of the summer, however, domestic banks will want to prepare for an annual strong fall in terms of demand for mortgages. Personally, I assume that we will end this year at a rate of 4.3 percent to 4.5 percent,” Drásalová added.

Also, according to other experts, the increase in rates on the interbank market stopped the expected discounting of mortgages. “Despite the reduction of the repo rate by the CNB, there was an increase in three-year and five-year swaps (forward contracts for the payment of agreed interest, or the difference between them), which have a significant influence on the determination of bid prices. Because of this, there was no corresponding drop in mortgage loan rates,” explained Jan Brejl, business director of Partners.

However, according to him, mortgage rates will undoubtedly fall in the coming months. “We can expect the level of rates to reach the level of four percent. Considering this, I recommend waiting for the refixation of the mortgage until one to two months before the end of the interest rate. For new mortgages, I recommend choosing a three-year interest rate fixation for both refinanced and new mortgages,” he said.

Sýkora sees it similarly. “The choice of fixation is always very individual and can be influenced by several aspects. But if we look at such a choice from a purely economic point of view, at the moment the most appropriate choice is about a three-year fixation,” he said.

“I expect rates to continue to decline in the coming months. However, the rate of decline will be lower than was speculated just a few months ago. It will always depend on the specific situation of the given person, whether or not to take a mortgage now, or how long to fix it, because general advice doesn’t work very well,” stated XTB analyst Jiří Tyleček.

The CNB reduced the rate to 5.25 percent

Economy

“Regarding the fixation, unlike in the past, I do not expect that the chosen fixation length will now have a significant impact. Although, we are talking about the level of market interest rates over a several-year horizon, so the level of uncertainty is considerable. However, I personally think that we can count on a decrease in rates. So I wouldn’t be afraid of shorter fixations. But for those who prefer certainty, the primary choice for them will always be a longer fixation,” summarized the analyst.

Due to the rising price of money on the interbank market, according to Tyleček, in recent weeks there was a threat that mortgage prices would even rise. “In certain cases, banks even had to reach into their margins to maintain favorable rates,” he said.

Now, however, according to Tyleček, there is a correction on the interbank market and the situation looks more favorable for mortgage applicants. “The drop in the price of money on the interbank market is related to the situation in the USA. Voices have begun to be heard that expect a more significant drop in interest rates again. The latest bad data from the US labor market added to the heat. The setting and expectations of the development of Fed rates affect their global level. Domestic Czech factors now play only a minor role,” added Tyleček.

Interest rates are falling on savings accounts

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