Mortgage market June 2022

The fall of the Czech mortgage market continues, the volume of mortgages granted in May increased slightly by 3.4% compared to April, but this seasonal growth is normal for May. Housing loans worth CZK 40.555 billion were provided in May, however, in a year-on-year comparison, the overall decrease remains around 60%.

The further cooling of the mortgage market reflects the significant tightening of the CNB’s monetary policy. At the last meeting of the bank board on 22.6. was decided on a draconian increase of the reference 2T repo rate by 1.25 percentage points, i.e. a change from 5.75% to 7.00% (corresponding to 1999 values).

Mortgage interest rates June 2022

The 7% threshold was already exceeded for the first time, so far only for 1 and 3 year fixations. However we can assume that bank offers will increasingly start at 7% even for longer-term fixations.

mBank was the first to even announce that the 8% threshold had been exceeded, i.e. for 1 and 3 year fixations for the time being. However the differences between the banks are deepening, and mBank with its approximately 2% market share is definitely not setting the trend for mortgages.

Most bankers expect rates to peak this year and predict a decline early next year. From July 1, 2022, the CNB will be managed by a changed bank board headed by Governor Aleš Michl, from whom many economists hope for a dovish change in course, i.e. a gradual end to the tightening of monetary policy. We will see if the development of the economic situation in the coming months will allow the new governor to turn the imaginary rudder.

Standard interest rates June 2022
Tabulka min. sazeb cerven

Average mortgage May 2022:  the average amount of the mortgage in May remained almost unchanged, i.e. 3,166 thousand. CZK, but the average monthly mortgage payment increased.

Prumerna splatka kveten

Refinancing
Most banks usually offer interest rates for refinancing previously granted loans with lower rates against new mortgages. The ability to verify the client’s history allows banks to reduce the trading margin. It is currently possible to get rates from 5.34% p.a.

The CNB sent mortgages up on record

Czech National Bank announced an increase of basic repo rate by a record 1,25 points, up to 2,75%. Mortgage loans in Czech will significantly grow up. Bank council has decided to take radical step that has no period in Czech history, because of extreme high inflation rate.  The last set value of inflation for October was calculated according to the consumer basket at 4.9%. The expected inflation value will most likely continue to grow min. up to 6%.

Mortgage interest rates in 2022

As today’s increase in CNB rates was expected by banking strategists in the range of 0,5 – 0,75, mortgages may not increase in price by the same amount, as the expected change has already been reflected in the pricing of recent days. Partly in spite of the current price of resources, commercial banks have already been raising mortgage rates in recent weeks, also for strategic reasons, to have room for special discounts during the main season.

However at the beginning of year 2022, we expect that mortgage loans will be provided with rates starting from 4.69 – 5% for standard 3 and 5 year fixations. Buying long-term fixations for 7 and 10 years will no longer make economic sense.

Mortgage repayment growth in 2022

How will be effect changes in practical life? For the model mortgage of CZK 3 million, approaching the average amount, the monthly payment will increase by more than CZK 2.000. The maximum amount of available credit will then decrease by CZK 487.000.
The modeling was calculated for one applicant with a net income of CZK 30.000, without other credit obligations, and the maturity was set at 30 years.

Year 2021
# 3,49% monthly payment CZ 13.455,- max. amount of possible mortgage CZK 3.628.000

Year 2022
# 4,69% monthly payment CZ 15.541,- max. amount of possible mortgage CZK 3.141.000

Mortgage index:

Hypoindex_October_2021

 

Czech mortgage rates November 2021

During October interest rates already rose above 3%. Thus, after a significant tightening of the monetary screws, commercial banks ordered a rise in rates.

In the last quarter interest rates rose by as much as 1%, while this average unprecedented change in the average mortgage represents a jump in monthly payment of more than 1000 CZK.

Mortgage interest rates November 2021

At the next meeting of the CNB’s Bank Board, held on Thursday, November 4, 2021, the reference 2W reference rate is expected to increase again by 0.5 percentage points. However, the game also includes a repetition of the last historically most radical jump of 0.75 points. Some economists are already talking about reaching the 4% level for mortgages provided in 2022. Mortgage rates in 2022 should start to provide in the range of 3.8 – 4.1%

End of refinancing

At the same time, with rising interest rates, interest in refinancing previously granted loans with 7, 5 and 3-year fixations is declining. In November, we are witnessing the end of pure refinancing, as the early provision of a favorable rate before the end of the fixation of a running mortgage ceased to make economic sense. The purpose of refinancing will thus mainly fulfill the function of consolidating more loans.

Standard rates November 2021
sazby listopad 2021
source: statistic of CNB and CBA, own analysis, update  1. 11. 2021

Refinancing
For refinancing loans, for which the pricing policy consists of a lower margin, a rate of 2,44% p.a. can be obtained for the last time. – during November, however, this minimum limit will also increase at least to 3,29% p.a.

Average mortgage October 2021: CZK 3.283.000, corresponds to an payment of CZK 13.455, at a rate of 2,78% p.a. and maturity of 30 years

Mortgage index 

Hypoindex_October_2021

Composition of the index: the index consists of the arithmetic average of mortgage loan rates provided with 3, 5 and 7 year fixation, the share of loans agreed without additional banking products (life insurance, insurance solvency, credit card, investment) represents 80-85%, the share of preferential loans for refinancing reached 30%, the index does not include products of building societies. The level of the index does not show the current situation on the mortgage market, but the situation approximately 2 months ago.

Mortgage interest rates May 2021

Will we see a cooling of the mortgage rally? Before we look at mortgage interest rates in May 2021, let’s summarize the key events of the past few days.

April events in the mortgage market 

During the April the mortgage rally broke out in full force, which began during March, when banks provided 14.400 mortgages in a record volume of CZK 44.7 billion. During April, despite rising interest rates, banks were literally flooded with new requests and real estate prices continued to rise. The epidemic began to weaken to which the government responded by presenting a plan to ease epidemic measures. People’s expectations of returning to normal full life have a positive effect on the optimistic behavior. People are trying to use the opportunity when the cheap mortgages are still available.

refinancovani kveten

Mortgage interest rates in May 2021

In May, we expect a further gradual rise in interest rates at most banks. According to the Czech Banking Association, up to 13% of people are planning a new mortgage in the near future. Relieved of the uncertainty of the epidemic, people are now more aware of the deteriorating housing availability. According to the survey, most people expect further interest rates and tighter mortgages, as a result of the CNB’s intervention strengthened by new powers.

In addition, there is still a significant group of retail investors in the real estate market, who, strengthened by the abolition of super-gross wages and “accumulated coronavirus savings”, are looking for additional real estate for rent. More than 25% of the population of the Czech Republic considers investment in residential real estate to be attractive, while approximately half of the population considers the purchase of real estate to be a safe and stable investment. We have also long observed a growing interest in “cottages”, where people flee from large cities to the countryside and invest in the acquisition, reconstruction and expansion of their recreational facilities.

May can be characterized as a month of end of individual discounts, when lending at standard published rates even by large banks, which usually report higher rates, but in the past often offered an additional individual discount.

Table of minimal rates May 2021:
hypoteky kveten 2021
source: CNB statistics, own analysis, updated on 1 May 2021

In addition, Hypoteční banka, mBank and Sberbank announce in advance a further increase in interest rates from 3 May 2021 in the amount of +0.2 points.

Refinancing
Most banks usually offer interest rates for refinancing previously granted loans with lower rates of 0.1 – 0.2 o against new mortgages. The possibility of verifying the client’s repayment history in bank registers, so in the case of trouble-free repayment, allows banks to reduce the risk premium. Currently, it is possible to obtain a rate of as little as 1.59% p.a. – during May, however, we expect this minimum limit to increase as well.

uroky hypotek 2021

“Mortgage refinancing is playing an increasingly important role, refinancing reached a new record in April, the monthly volume of refinanced loans was 5 times higher”

refinancovani duben

Average mortgage May 2021: CZK 3,009,800, corresponds to an payment of CZK 11,185, at a rate of 2.04% p.a. and maturities of 30 years

Mortgage index April 2021

hypoindex kveten 2021

Composition of the index: the index consists of the arithmetic average of mortgage loan rates provided with 3, 5 and 7 year fixation, the share of loans agreed without additional banking products (life insurance, insurance solvency, credit card, investment) is 80-85%, the share of preferential loans for refinancing reached 35%, the index does not include products of building societies.

(source: statistics of the CNB, CSA and commercial banks)

Czech mortgage rules

Basic 3 rules of czech bank for non-residents to be accepted.

If you want apply for mortgage loan in the Czech Republic you have to fulfill at least one of the following conditions:

  • Provable income in Czech (stable salary or own business)
  • or be married with czech partner having income in Czech
  • or has czech partner (childern, parents) with the income in Czech

 

Abolition of real estate tax on housing units

Housing units in family houses will be exempt from real estate transfer tax. On 8 October 2019, the President of the Republic signed an amendment to the Act regulating the acquisition of flats in family houses. Newly, the buyer saves 4% on the purchase of an apartment in a family house.

Currently, the tax is not paid for the first acquisition of a new family house or apartment in an apartment building. Nor is it paid for the free transfer of real estate in the form of a donation or inheritance.

Due to the “discrimination” of housing units in family houses, the legislation was unified. This will now also apply to the first acquisition of housing units in family houses. The family house can then have a maximum of three housing units in order to benefit from the exemption.

The amendment will come into effect after its publication in the Collection of Laws. Unfortunately, for other types of real estate, the tax liability remains unchanged despite the efforts of some politicians.

New Czech real estate law

Real Estate Act 2020

The new law on real estate brokers, which should apply from 1.1.2020 seeks to cultivate the Czech real estate market. We bring you an overview of the proposed changes.

  1. Obligatory professional insurance of real estate brokers with insurance indemnity limit min. 1,75 million CZK per claim and 3,5 million CZK in the event of more than one loss caused in one year.
  2. Qualified trade licence for brokers. It will be no longer enough to establish free unqualified trade licence. Currently anyone who has a clean criminal record can immediately open real estate agency. The condition of the qualified trade license is newly professional education, which will be verified by a professional examination. Brokers with secondary education must have 5 years of experience and brokers with university education need 3 years of experience to avoid a professional examination.
  3. A written mediation agreement between the broker and the seller of the property will be obligatory. Written agreement should reduce unfair practices such as unauthorized advertising of orders or takeover of contracts between individual real estate agents.
  4. Information duty – the real estate agent is obliged to inform those interested in buying / renting real estate about specific defects and limitations, then it is obliged to clearly inform about the amount of its commission. If the broker fails to comply with this obligation within 14 days, the candidate may resign from the contract.
  5. Penalties for offences – according to the severity of the misconduct, fines are introduced, for less serious offences up to 100.000 CZK

Adoption of this law will certainly reduce the number of small real estate entities, professional insurance, which costs approximately 10.000 CZK per year, introduces new barriers to market entry.

Mortgage for foreigners

“Can I get a mortgage loan if I am a foreigner in the Czech Republic?”

According to bankers simple answer is yes! foreigners, resident or not, can legally buy real estate property in Czech. There is overview of elementary bank conditions how to arrange mortgage loan. It is possible to finance real estate property for own housing or also as an rental investment, we focus on both scenarios.  The best way how to apply for credit is to use one of the top traditional international bank however some small Czech bank can offer individual approach and benefits.

EU non-residents
As non-residents banks consider clients without permanent residence in the Czech and at the same time with different nationality from the Czech Republic.

1. Maximal 80% Loan To Value (LTV)
2. Minamal 20% own savings to co-finance purchase price
3. Debt Service To Income (DSTI)*:  max45%
4.
Debt To Income (DTI)*: max. 9x
5. Temporary or permanent residence in CZ at least 3 years
6. Income ideally employment contract from Czech with indefinite duration
7. Assured by a notarial deed of recognition of debt with permission to enforce

The granting of mortgage loan to non-residents is possible as well if co-applicant is Czech husband/wife who has income in the Czech Republic.

Procedure how to manage loan is described in steps here:

There are basic mistakes good to avoid:
– 100% loan is not allowed, market value of house/flat for your bank may be lower,
– do not forget to include transfer tax payment 4% in your calculation,
– do not forget to include commission to real estate agency (is due on the beginning).

Czech real estate business practices and habits:
– usually commission to real estate agency is 4 or 5% from purchase contract,
– commission to real estate agency is due on the beginning within 5 days from signing reservation contract,
– reservation deposit is not refundable by real estate agency if buyer will resign to purchase contract,
– if bank will decline mortgage loan real estate agency usually not return commission back,
– money are deposit on lawyer saving bank account until Cadastral office will transfer property right to new owner,
– Cadastral office will not transfer property right earlier than in 21 days, max. period is 51 days.

 

How to get mortgage in Czech?

Do you want to buy flat or build your own house in Czech Republic? Do you need take a loan from Czech bank? Here is  overview of the basic legal conditions required by Czech National Bank (CNB). These rules are universal for everybody despite you are Czech citizen or not.

Mortgage rules:
1) Object of purchase: flat, family house, apartment house, cottage or building land,
2) Loan to Value can be max. 80%,
3) Own savings: 20%  of your own money you have to invest first,
4) Debt Service To Income:  max. 45% monthly payment of loan vs. your’s net income,
5) Debt To Income: max. 9x – total loan vs. early net income,
6) Scoring of bonity: positive stable sufficient income, no negative history about previous loans.

Recomended steps how to stay on safety side and has situation under control:
1) Ask your mortgage broker to prepare credit offers and compare coditions,
2) Asko your broket to do scoring of bonity in bank before signing reservation contract with real estate company,
3) Let do valuation of house or flat you want to use as bank quarantee (pledge) by bank technician,
3) Reservation contract with real estate agency can be signed,
3) Let check purchase contract, therms and conditions of widrawing money has to be usualy adjusted with a bank,
4) Mortgage loan will be approved by bank and shall be signed,
5) Signing purchase contract at a notary office,
6) Signing pledge contract at a notary office.

Need more explanation of above terms? Or need to know your scoring? Please contact us by form.

How to recognise good financial advisor?

1. The mortgage advisor is not a sales representative

A good mortgage advisor is usually an independent so he should logically cooperate with several financial institutions and not only offer products from one of them, otherwise it would be a sales representative of a particular bank. The main reason why the services of independent mortgage (financial) advisors use them is primarily the wider range of services offered and their experience.

2. He listens first, then suggests a solution

A quality mortgage advisor will first listen to you, find out ideas about the acquired property, verify your financial possibilities, time frame and actually the reality of your entire project. A good advisor never offers a single solution or offer from one bank at the first meeting. From the first call or meeting, count about one week before suggesting a suitable solution and submitting a comparison of the offers of more banks or building societies.

3. Certification and passing the professional exam

Beginning 1 December 2018, the provision of consumer credit for housing (mortgages) is regulated by the CNB’s rules and all “creditors” must be properly certified. We wrote here. So make sure that you meet this condition and make sure you are not dealing with someone who will only forward your documents to your friend. Even though there has been a significant reduction in the number of intermediaries, we recommend that you find the history of your advisor in the Commercial Register or Trade Register, as well as the details of the intermediary’s age or the length of time the company operates in the market.

4. Offer of the loan

If your adviser promises you an unrealistically low interest rate, be careful. The Consumer Credit Act regulates the form of the loan offer, so it must always include: APR, interest rate, details of all fees, which are part of the total cost of the loan, the amount of the individual installments and the total amount due, the duration of the loan, information on the obligation to conclude a contract on supplementary service related to the loan (especially insurance if the conclusion of such a contract is a condition for obtaining a loan under the conditions offered).

Be realistic and not be tempted by unrealistic temptations and insist that the submitted bid contain legal requirements.

5. References, experiences

We recommend that you check the references of your consultant, ask for a phone call with a previous client. If the client was satisfied, he would certainly not refuse to help his advisor to acquire a new client. On the other hand, a serious consultant will not lure you into contact with his friends, but will rather rely on you to recommend it because you want the best for your friends.

If you have some doubts with offer of loan you have and needs our advise please contat us through the form.

Changes on Czech financial market

Housing financing at the beginning of 1 th December 2016 were changed, the rights of clients were strongly improved.

The most important benefits for clients:

  1. The “cooling off” period of 14 days. Clients have now a 14-day “cooling-off” deadline prior to signing a credit agreement whereby the bank may not change the terms of the loan during this period.
  2. Extraordinary mortgage payments free of charge. Newly, clients can give up to 25% extra payments every year free of charge.
  3. Penalties for early repayment, in the case of exceptional life situations: sale of real estate, death of the debtor, or divorce, the penalty for early repayment is reduced only to the purposefully spent costs of the bank corresponding to the bank’s expenses for early repayment (1% of unpaid principal max. 50,000 CZK).
  4. Structured offers. Banks need to provide information about the total cost of the loan in a fixed structure so that the individual offers of individual banks can be better compared with each other. Banks must indicate the RPSN.
  5. Appeal against the Bank’s Misconduct, newly introduced the possibility for the client to appeal against the nullity of the contract, if the bank failed in the scoring and provided the loan demonstrably to the debtor unable to repay, this period is 3 years.

The new disadvantages for clients:

  1. Stricter assessment of the applicant’s financial situation, more detailed examination of revenue and expenditure structure. For example, banks examine a bank statements of client.
  2. Longer period of loan processing.

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