Mortgages fell for the first time after months of growth

Mortgages fell for the first time after months of growth
Mortgages fell for the first time after months of growth

After long months of growth, mortgage interest rates are starting to fall slightly. However, according to mortgage experts, the drop in the average offer rate of a home loan by five basis points will not make the repayments much easier for interested parties.

According to the Fincentrum Hypoindex, the average mortgage offer rate fell by 0.05 percentage points over the last month and amounted to 6.23 percent in the first week of September. However, the very slight drop in rates does not yet bring about a fundamental change in the trend, and rates will probably continue to stagnate.

“Despite the fact that there were no changes in interbank interest rates, the September Fincentrum Hypoindex fell by five basis points to a value of 6.23 percent. This very slight reduction is mainly due to special mortgage offers of some banks. So far, the market is developing according to our estimates from previous months – mortgage interest rates are more or less stagnant,” said Jiří Sýkora, mortgage analyst at Fincentrum & Swiss Life Select.

A hundred crowns cheaper

Along with the slight drop in interest rates, the monthly mortgage loan payment also falls. In the case of a mortgage for 3.5 million crowns negotiated 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 offer rate of 6.23 percent, the installment in September amounts to 23,035 crowns.

“The slight drop in rates was of course also reflected in the repayment amount of the average 3.5 million mortgage, which fell by approximately 115 crowns. However, at these prices, the drop is so negligible that it has no practical impact on the mortgage market and clients,” Jiří Sýkora added.

Similarly, Jiří Feix, CEO of Hypoteční banka, also talks about the increase in the price of mortgage loans. According to him, a three-million dollar mortgage today has become more expensive by approximately ten thousand crowns compared to the period when loans were offered at two percent interest.

CNB credit indicators

Pointer LTV (Loan to Value) represents the percentage ratio between the amount of the loan and the value of the mortgaged property. The CNB recommends that, from April 2022, this indicator should not be exceeded for new loans 80% (90% for people under the age of 36).

Pointer DTI (Debt to Income) is the ratio of the amount of total indebtedness of the loan applicant and the amount of his net annual income. From April 2022, the CNB set this indicator at 8.5 (for young people up to 36 years old 9.5).

Pointer DSTI (Debt Service to Income) is a percentage expression of the share of the loan applicant’s annual average expenses resulting from his total indebtedness (so-called debt service) on his annual net income. Simply said it’s about percentage of the total amount of all monthly installments on net monthly income of the loan applicant. From April 2022, the CNB set this indicator at 45% (50% for young people up to 36 years old).

The bank’s credit indicators take into account for new loans. In the case of refinanced loans (or continuing mortgages after the end of fixation) only if will increase the original loan.

Banks can, for applicants who are convinced that they will repay the loan without problems in the future, make an exception and do not use the limits – every quarter on 5% of the total volume of mortgage loans they provided in the previous calendar quarter.

Mortgages for young people have become more expensive

Interest rates for mortgages up to 80 percent of the appraised value of the property (LTV) fell for all fixings.

A drop in interest rates for an 80% mortgage

  • interest rates for mortgages with a fixation on one year fell by 0.05 percentage point to 6.52%
  • interest rates for mortgages with a fixation on three years fell by 0.05 percentage point to 6.41%
  • interest rates for mortgages with a fixation on five years fell by 0.07 percentage point to 5.94%
  • interest rates for mortgages with a fixation on ten years fell by 0.05 percentage point to 6.03%

On the contrary, the price of mortgages, which are intended for young people under 36 years of age, increased by more than 80 percent of the estimated price of real estate. Five-year fixed mortgages recorded the lowest increase, with rates rising by an average of five basis points to 6.28 percent.

Rates for one-, three-, and 10-year fixed-rate mortgages increased by 0.06 percentage points. It is possible to fix a mortgage above 80 percent LTV for an average of 6.27 percent, for three years for 6.74 percent and for 10 years for 6.36 percent.

Will the stagnation continue?

The Banking Council of the Czech National Bank will again discuss the setting of basic interest rates at the end of September. The basic scenario of the new macroeconomic forecast shows that the central bank would not have to continue raising interest rates even in future meetings.

However, the Banking Council is very likely not to go down the path of lowering base rates yet. This would mean for the mortgage market that mortgage interest rates would remain at their current high levels for some time.

“Slight fluctuations will probably only be brought about by promotional offers from banks as part of the competitive struggle,” concludes Jiří Sýkora, mortgage analyst at Fincentrum & Swiss Life Select.

The article is in Czech

Tags: Mortgages fell time months growth

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