“A fee at the level of one percent can significantly limit the ability of a number of banks to offer long-term fixations,” Česká spořitelna spokesman Filip Hrubý told Práv. According to him, banks are already starting to favor interest guarantees for less than five years.
“It can therefore be speculated that the process of the disappearance of long fixations may have begun,” Hrubý pointed out. Banks fear that over the years the price of money in the market may change against the one for which they gave the mortgage, and they would lose out due to the departure of the client during the fixation. The longer the interest rate fixation, the higher this risk for them.
In recent years, people have used long fixed rates more often, as rates have remained historically low, even below two percent.
They did not hesitate to change banks during the fixation period because of this – and it paid off. They took out more long-term guarantees as soon as rates began to rise rapidly above three, four, and even above seven percent.
The process of long fixations disappearing from the offer of domestic banks may have already begun.
“It is very likely that the introduction of the fee for early repayment of the mortgage will partially limit the mass transfer of clients between banks. However, it will become relevant only at a time when mortgage rates will again fall more significantly,” said Jiří Sýkora, Swiss Life Select analyst.
The government’s proposal originally envisaged that banks could charge a fee of up to two percent of the unpaid principal for early repayment of mortgages, but part of the coalition parties did not agree.
According to Hrubé from Česká spořitelna, the currently proposed one percent will not cover the banks’ risk.
“Banks must consider how the price of money on the market will change during the duration of the mortgage in order to be able to manage the risk associated, for example, with the fact that the price of the resources they used to finance the mortgage will rise sharply,” pointed out Hrubý. “Clients will be de facto motivated to break the contract of fixation by the low fee for early termination of the contract. And banks will not be very motivated to provide long fixations and expose their economy to the risk of loss,” the spokesperson added.
“A compromise that doesn’t solve the problem”
Other banks expressed themselves in a similar vein. “The amendment establishes clear rules. We perceive its wording as a compromise that does not address the availability of longer interest rate fixations in the future,” UniCredit Bank spokesman Petr Plocek said.
According to Jan Brejl, business director of the Partners financial group, which will open a bank in the Czech Republic in the spring, the fee is compensation to the bank for the fact that the client does not comply with the agreed length of fixation.
“He will get guaranteed conditions for a specific period, and the bank may not change them during this time. Thanks to this, he will reach more favorable interest rates,” he emphasized.
According to him, the sanction must be sufficient to make the client fulfill his obligation.
“More than a quarter of a percent per year and a maximum of one percent overall does not meet this requirement. We would end up in a situation where the client will be exposed to potential sanctions, but the banks will not have sufficient confidence that the client will fulfill his obligation and will not reflect this in the interest rates,” said Brejl.
He added that transitions between banks will limit this only partially, especially for small loans or with longer fixations, when paying the penalty is not worth it to people.
He also reminded that the law envisages situations where the client can repay up to a quarter of the loan without penalty once a year and in the event of death, divorce, ill health or sale without restrictions.
The amendment, which is now being considered by the Chamber of Deputies, also provides for the fact that the loan can be repaid early without penalty when selling the property after two years from its purchase.
The client has to calculate whether it is worth it
Until now, banks charged fees for early mortgage repayments differently. Due to the method of calculation and the high fees, the Czech National Bank fined some of them, the courts also defended the client on the grounds that it was unjust enrichment in the case of the bank.
Analyst Sýkora from Swiss Life Select does not expect the impact of the new fee on rates.
“This could happen if this fee was not introduced. Banks would further project possible future losses into higher rates for all mortgage applicants. It could even lead to the cancellation of longer fixations or fixations as such,” he declared.
According to the director of the financial startup Hyponamíru.cz, Miroslav Majer, the current state, when clients can refinance mortgages, is unacceptable for banks.
“This is a situation where the bank buys resources under certain conditions in order to provide money to the client, and commits itself for a longer period. The bank wants the client to respect the time setting of the trade, where he has a minimum block for refinancing today,” he said.
“The decision to introduce a penalty of up to one percent for early repayment can increase this block for refinancing, and the client will have to calculate more whether it is worth it,” he reminded, he added.
Mortgages are gradually getting cheaper
The average mortgage rate at the beginning of November fell to 6.01 percent from 6.05 percent in October, thus decreasing for the sixth month in a row. Over the past six months, rates have fallen by 31 points. This follows from data from the Swiss Life Hypoindex.
The most significant decrease in interest rates was recorded by mortgages fixed for three years, by an average of 0.13 percentage points.
Mortgages fixed for five and ten years have also become slightly cheaper. Five-year fixed rates fell by three points to 5.81 per cent for mortgages up to 80 per cent of the property’s mortgage value (LTV) and to 6.15 per cent for the youth mortgage.
Ten-year fixed rates have dropped one point, and banks are offering these mortgages on average with an LTV of up to 80 percent for 5.87 percent and with an LTV above 80 percent for 6.22 percent.