“Over the last six months, rates have fallen by more than three-tenths of a percentage point. In general, banks primarily copy the behavior of the CNB, which at its November meeting again left rates at their current values,” says Jiří Sýkora, mortgage analyst at Swiss Life Select.
The CNB stated at the beginning of the month that it will most likely reach for a reduction at the next meeting, i.e. in December. “However, he warns in advance that this possible reduction will be very gradual. It will then be up to the banks whether they will reflect any reduction in mortgage rates immediately as an imaginary Christmas gift to clients, or wait for the reduction until the start of the mortgage market at the beginning of 2024,” adds Sýkora.
Already at the end of the summer, loans for mortgage novices, i.e. for people who took out their first mortgage and did not go to the bank only to refinance their older loan, were significantly below average. In September, they borrowed on average at 5.74 percent. According to the latest available statistics of the Hypomonitor of the Czech Banking Association, the rates were at the same time the lowest for the past year. “However, despite this decrease, mortgage rates remain among the highest in the last twenty years, although in 2008 and 2009 they were also at similarly high values,” emphasizes Jakub Seidler, economist of the Czech Banking Association.
At the same time, mortgages with a fixed interest rate for three years have become cheaper, while housing loans for applicants who finance the purchase of real estate with at least a fifth of their own savings have become more favorable since autumn. “On the other hand, mortgages fixed for one year were issued against the current,” adds Sýkora.
According to him, these are also the most expensive on the market, on the contrary, the banks currently offer the lowest rates for a fixed rate agreed for the next five years. Falling interest rates are also reflected in a decrease in the burden of loans for the family budget. According to the Swiss Life Hypoindex, the monthly installment of a model mortgage for 3.5 million closed for a quarter of a century has already dropped by seven hundred crowns this year.
At the same time, more favorable rates attracted more clients to bank branches. “Czech households are responding positively to the slight drop in interest rates and are also perceiving year-on-year lower real estate prices and their wider offer,” Martin Vašek, head of Hypoteční banka and ČSOB Stavební spořitelna, describes the situation on the market. In September alone, banks and building societies lent out almost 14 billion crowns within the framework of roughly 3.5 thousand new mortgages, which is almost double the volume of loans compared to the same month last year.
“We are observing a slight increase in mortgages taken out for small apartments. Currently, 1+kk and 2+kk apartments represent roughly two-thirds of the apartments for which our clients take out new mortgages,” says Česká spořitelna spokesman Filip Hrubý. At the same time, one-room mini-apartments are particularly interested in mortgage financing.
“One-bedroom apartments five years ago accounted for roughly a fifth of new mortgages, while today roughly one in three new mortgages is provided for this type of apartment,” adds Hrubý.
If the CNB really reduces the key rate in the economy from the current seven percent in December, according to economists, it will probably only be a drop of a quarter of a percentage point. “Although the banks are looking forward to the recovery of the mortgage market, the reduction of the base rate by a quarter of a percentage point might not be immediately reflected in the mortgage rates, whether it is before or after Christmas,” says Sýkora.
According to him, most banks have already factored in a certain expected drop in mortgage rates, which is also the reason for the slight drop in rates in recent months. “On the other hand, even the slightest impulse from the CNB is good news for the mortgage market, that the period of high rates is coming to an end,” reminds the analyst.
For the entire year 2022, banks and building societies provided mortgage loans in the amount of 197 billion crowns, of which pure new loans without refinancing accounted for 162 billion. However, compared to the record year 2021, it was a drop of more than two-thirds.