Interest in mortgages has plummeted, but property prices still soaring

In January, banks and building societies in the Czech Republic granted mortgages in a total volume of around CZK 32.6 billion, a drop by more than a quarter on December, the news site Aktualne.cz reported, citing data by the Czech Banking Association. Despite that, property prices in the Czech Republic continue to break records.

“January tends to be weaker than the end of the year in terms of mortgages granted. But the month-on-month drop of almost CZK 12 billion goes well beyond the normal January slowdown. It foreshadows this year’s development in terms of granted mortgages,” Jakub Seidler, chief economist of the Czech Banking Association told Aktuálně.cz.

Matěj Novák of Moneta Money Bank attributes the decline primarily to the continuous growth of interest rates.

“We expect the market to cool further after April of this year, when a tighter regulation of mortgage lending limits comes into effect,” he told the website.

In January, the average mortgage rate reached its highest level since the turn of 2012 and 2013 and they are expected to increase even further this year.

“We expect interest rates to go up further and be around five to 5.5 per cent by the middle of this year. Towards the end of the year, they could slowly start to fall,” Milan Voldřich, Raiffeisenbank's mortgage credit manager, told Aktuálně.cz.

Experts predict that the property market could respond to the rise in mortgage prices by cooling the current, significantly overheated prices, but so far this is not happening.
According to ČSOB bank data, house price growth in the last quarter of 2021 again surpassed previous records.

“Prices of land rose by almost six per cent in just three months, with a year-on-year growth exceeding 23 per cent. This is the largest increase in the history of our index. Residential units continued to show steady price growth, rising by five per cent, just like last quarter,” says Jiří Feix, Chairman of the Hypoteční banka and ČSOB Stavební spořitelna mortgage banks.

Mr Feix expects the pace of price growth to slow down in the near future, mainly due to more expensive interest rates. However, he also says none of the segments will see a drop in the current prices.