Rising interest rates deterring Czechs from taking mortgages

The Czech Republic’s banks and building societies provided new mortgage loans to the tune of CZK 17.5 billion in April, which was a fall of 40 percent on the previous month and of 60 percent on April 2021.

The average interest rate on new mortgages climbed from 4.15 percent in March to 4.4 percent last month, according to data from the Czech Banking Association’s Hypomonitor index – which aggregates numbers from all the association’s members – cited by the Czech News Agency.

The marked fall in new mortgage loans seen last month was evidently caused by a tightening of the Czech National Bank’s rules on their provision.

The increase in interest rates had been expected and the trend looks set to continue in the coming months, on the back of further rises in market interest rates.

The volume and number of mortgages provided in the whole of this year is likely to be 40 percent lower than on 2021, the the Czech Banking Association said.

Jiří Feix, who is chairman of the board of Hypoteční bank and ČSOB Stavební spořitelny, told the Czech News Agency that while interest in owning property is not declining, the number of people willing and able to invest in the current conditions is rapidly falling.

The volume of newly provided mortgages, without refinancing, fell by more than CZK 11 billion to CZK 14.2 billion in April. This is the lowest volume in roughly three years.

For refinanced loans (internally or from another institution) the decline was from CZK 4.9 billion to CZK 3.3 billion.

The number of new mortgages fell below 4,500, compared to an average monthly number of mortgages exceeding 7,000 in the first quarter of this year and 9,500 in the same period last year.

Rates have been constantly rising for a year, with the average mortgage rate reaching its highest level since the first half of 2011 in April.

The average mortgage fell slightly below CZK 3.2 million in April. With stricter rules on the part of the central bank and high interest rates increasing monthly payments, some households had to rethink their intended mortgage.

As interest rates rise, so does the monthly loan repayment. An increase in mortgage rates by one percentage point means an increase in the monthly payment by CZK 1,600 to CZK 2,000 for the average mortgage.

Compared to the 2% rate that was common on the market in previous years, the 5% rate means an increase in the monthly payment for an average mortgage by CZK 5,000 to CZK 6,000 a month.