Until recently, housing loans were becoming more expensive at rocket speed. Thus, mortgage interest rates rose from 2.3 to more than six percent in a single year. Now the situation on the market is finally calming down, although according to experts, there is no talk of discounting mortgages yet. According to current data from the Fincentrum hypoindexu, the average interest rate even fell slightly, to 6.23 percent.
The average mortgage offer rate according to the current hypoindex, which monitors the offers of most banks in the Czech Republic, fell by 0.05 percentage points over the last month. However, according to experts, the slight decrease does not yet bring about a fundamental change in the trend.
“This very slight reduction is mainly caused by special mortgage offers from some banks. So far, the market is developing according to estimates from previous months – mortgage interest rates are more or less stagnant,” confirmed Jiří Sýkora, a mortgage analyst at Fincentrum & Swiss Life Select, which runs the hypoindex.
The monthly installment of a mortgage loan for 3.5 million crowns agreed up to 80 percent of the estimated price of the real estate with a fixation for three years, a maturity of 25 years and an average annual offer rate of 6.23 percent amounts to 23,035 crowns in September.
“The slight drop in rates was also reflected in the amount of the monthly installment of the average 3.5 million mortgage, which fell by around 115 crowns. However, at these prices, the drop is so negligible that it has no practical impact on the mortgage market and clients,” Sýkora pointed out.
Rates decreased the most for five-year fixed mortgages, by 0.07 percentage point to 5.94 percent. Mortgage rates fixed for one, three and 10 years all fell by five basis points.
Banks offer mortgages with a one-year fixed rate for an average of 6.52 percent, three-year fixed rates for 6.41 percent, and 10-year fixed rates for 6.03 percent.
People don’t flock to mortgages
Also according to the Hypomonitor of the Czech Banking Association (ČBA), the current rate growth is stopping. According to him, the rates currently range from six to seven percent, depending on the specific parameters of the mortgage. They are apparently at their peak.
According to the association, mortgage rates react with a slight delay mainly to the development of market interest rates of longer maturities. A number of factors are reflected in them – i.e. not only the expected development of the central bank’s basic rates, but also the outlook for inflation, economic development and the dynamics of similar interest rates abroad.
At the same time, market interest rates have been gradually falling since mid-June. Their downward trend was also reflected in the latest meeting of the Czech National Bank (ČNB), which indicated that it no longer expects a further increase in base rates, although it cannot be completely ruled out.
“If there is no further escalation of problems with the supply of gas or food commodities, then inflation, the interest rates of the CNB, and therefore the interest rates on new mortgages, should be close to their peak at the moment. In the coming months, it is more likely that the offer mortgage rates will a decline, albeit a slight one,” estimates Michal Skořepa, an analyst at Česká spořitelna.
According to the banking association, people’s interest in mortgages has also dropped significantly. And that’s not only because of rising interest rates, but also because of stricter conditions for granting loans and the deteriorating economic situation.
According to CBA, the volume of mortgages granted in July reached 11.9 billion crowns, which represents a drop of more than a third compared to June. In a year-on-year comparison, this is even a three-quarter drop. The volume of actually newly granted mortgages, i.e. without refinancing, fell by almost six billion crowns in July, from June’s 15.7 billion to 9.8 billion. That’s the least since 2016.
It’s time to negotiate discounts
According to a number of analysts, the time when people rushed to banks to secure a low-rate home loan is over. Now, on the other hand, due to the drop in interest, it is time to negotiate discounts from the banks.
“Current times give room for special mortgage offers, when we could get below six percent for typical loans in the amount of 80 percent of the value of the property with a five-year fixation. In the case of interesting deals, there could even be a more significant reduction in the interest rate, but that is true in individual cases,” says Libor Vojta Ostatek, Broker Trust’s mortgage expert.
According to him, even in today’s situation, a loan with a rate of around six percent makes economic sense. “The reason is the current almost 20 percent inflation. In such a scenario, when the value of money decreases significantly, it is more advantageous to owe money, because the real value of the debt also decreases. Today’s setting is truly unique, and such conditions did not exist even in the crisis year of 2008. At that time, inflation reached 6.3 percent and mortgage interest rates were 5.6 percent,” Ostatek points out.
In his opinion, the level of the rate may not be a scarecrow even from a long-term perspective, as long as inflation is not high. “Banks will be allowed to negotiate the rate with reliable clients they don’t want to lose,” says the analyst.
Just as interest in mortgages cooled this year, so did interest in real estate. According to Ostek, there are no longer many interested parties for houses, apartments or cottages for sale, and the number of available properties is growing.
“Buyers are now in a much better position than, for example, a year ago. Not only is the offer of real estate gradually increasing, but after years it is possible to negotiate a price again, when it is not unrealistic to achieve a significant discount, sometimes greater than one percent,” concludes the expert.