Czech home loan leaders put up mortgage charges

Leading Czech mortgage lenders have signaled that home loans are set to rise with the era of record low rates coming to an end.

Photo: Jiří Němec, Radio Prague International

In April the headlines were of record low mortgage rates in the Czech Republic. Now the headlines are about two of the mortgage lending leaders pushing up borrowing rates again with more rises apparently to follow.

Business daily Hospodářské Noviny reported Monday that both Hypoteční Banka and Komerční Banka have moved to up their lending rates. The margins are not dramatic, but it is still being seeing as something of a milestone and signal that the long slide towards cheap loans is being reversed.

According to the Hypoindex, mortgage rates reached a low of 2.11 percent April. They have been on a longtime downward trend since the end of 2010. But, that month at least, the low rates did not bring a rush of borrowers. Demand actually fell off, although the average sum being sought by borrowers continues to rise to stand at just over 1.78 million crowns.

Hypoteční Banka and Komerční Banka have around 28 and 26 percent of the home loans market respectively. Apparently, third placed Česká Spořitelna, which has been suffering after being overtaken earlier this year by Komerční Banka, is keeping its rates on hold for the moment in order to get a competitive advantage. But it is expected to follow suit within a few months.

One reason for the mortgage hike is a Europe-wide increase in investment returns which is making borrowing and lending more expensive. Bond yields, for example, have increased and so have inter bank lending rates. Czech banks, however, insist that they are expecting a gradual rather than steep rise in the costs of borrowing with competition on the market helping to curb higher charges. Timid, but resurgent, inflation is also playing a part.

News of the mortgage hikes might actually boost the market and encourage last minute borrowers before conditions worsen further. House and flat prices are also a factor. Prices fell soon after the economic recession set in 2008 and did not start to recover until 2008. With the economy showing signs of strong growth and unemployment being squeezed, especially in most major cities, housing prices are expected to climb further.