Czech Republic: Mortgages have become cheaper and banks continue to dictate interest rates

Although there is increasing talk of rising interest rates and some banks have already raised their mortgages in January, average mortgage interest rates continued to fall in January.

The average mortgage interest rate, according to the Fincentrum Hypoindex indicator, has been falling for ten months in a row. As in December, the average rate fell by two basis points in January, ending at 1.94 percent.

Jiří Sýkora, mortgage specialist at Fincentrum & Swiss Life Select said, Given that the price of resources has been rising for several months and the riskiness of loans is gradually increasing, the continuing decline in the average rate is surprising. However, the share of non-performing loans is not yet as high as banks expected during the first wave of the pandemic.

Vladimír Staňura, an advisor to the Czech Banking Association said, despite the decline, the reversal of the trend is already hanging in the air. The price of money on the interbank market is rising. This will push up interest rates on mortgage loans in the market.

The situation today is forcing clients to negotiate the lowest possible rates, even if their fixation is not over. I pushed my bank and outside the fixation, we pushed them to the interest rate of 1.89% with a fixation for eight years with the help of an offer from a competing institution.

For example, Hypoteční banka offers the opportunity to talk about a cheaper mortgage directly in its electronic portal. In the main menu there is a tab Change interest rate. The client learns that the bank will send a new interest rate offer three months before the end of the current rate. Below this information, however, is a green I want a quote now button.

Despite strong competition, the current bid rates on banks' mortgage loans are already indicating the direction of interest rates. In January, Moneta Money Bank and UniCredit Bank raised mortgage interest rates by a tenth.

The growth of mortgage rates will probably be supported this year by the Czech National Bank (CNB). According to Jiří Sýkora, however, it is increasingly likely that the central bank will raise its first base rate this year later than originally planned, in November. The reason is still the great uncertainty that exists regarding the further development of the covid-19 crisis.

In January, the volume of mortgages provided fell by more than 4.5 billion crowns compared to December last year. Nevertheless, January, with a volume of 24.942 billion crowns, became the strongest first month of the year in the history of the Fincentrum Hypoindex indicator. Year-on-year, the volume of agreed mortgages increased by more than eight billion crowns.

Compared to December, the number of mortgages provided fell by 1,571 to 8,380 in January. The mortgage market only managed a more successful start to the new year in the number of mortgages provided in 2017, when banks arranged 8,665 mortgages.

The average amount of mortgages is growing, reaching CZK 2,976,346 last month. "Growth has slowed down in January. While during December the average mortgage increased by almost 80 thousand crowns, in January it was only by about 10 thousand crowns. This may indicate a slowdown in real estate price growth, "says Jiří Sýkora.

Already in the fourth quarter of last year, the growth rate of prices of new flats in Prague slowed down, and it can therefore be expected that prices will rather stagnate this year. However, the demand for one's own housing still exceeds the supply and the construction of new flats is stagnant. Therefore, according to Sýkora, it is unlikely that real estate prices will fall this year as well.