Czech mortgage rates continue decline: Will home ownership become cheaper?

The decision of the Czech National Bank (ČNB) last week to reduce its base interest rate by half a percentage point, to 5.75 percent, will trigger a decline in mortgage rates and most likely stimulate an increase in property purchases as the state aims to improve the rate of home ownership.

This time last year, ČNB-set interest rates hovered at 7 percent, repelling people from property purchases and leading to near-record-low numbers of mortgages taken out. For example, the first quarter of last year saw the fewest apartments sold in the preceding seven years. The ČNB began cutting interest rates at the end of last year, and the current rate is the lowest since June 2022.

Lower mortgage rates make it easier and more affordable for the consumer to buy a house. Mortgage advisor Roman Sejko of real estate company Hypodům told Czech media outlet Seznam Zprávy that more consumers will negotiate – and possibly refinance – their mortgages due to the rate dip. 

Considering the average mortgage amount across Czechia, a 0.3-percentage-point drop in the mortgage rate sees monthly installments cut by about CZK 577.

Recent data from the Czech Banking Association’s Hypomonitor that tracks housing developments shows that the mortgage market is already experiencing growth. In February, banks and building societies provided housing loans worth CZK 15.8 billion to households – a sizable 21-percent increase from the previous month.

Times are good if you’re considering taking out a mortgage now, but they may get even better later. Despite the ČNB’s recent move, banks are not eager to quickly lower their loan rates at this instant. As interest rates continue to decrease, more clients refinancing their existing loans could potentially cost banks extra money – hence them currently taking their time before cutting their offered mortgage rates.

However, with more ČNB interest-rate cuts expected – Deloitte economist David Marek expects the main interest rate to fall to around 4 percent by the end of 2024 – banks will inevitably cut their rates as the year progresses. 

The Swiss Life Hypoindex – tracking average mortgage rates offered by the country’s financial institutions – shows that the average commercial mortgage rate currently stands at around 5.6 percent. This figure has fallen in line with the reduction in the ČNB’s interest rates.

Analysts broadly agree that prices in the Czech real estate market have already bottomed out due to low demand for buying property last year, and will grow slightly in 2024. “Decreasing interest rates…will only support demand and consequently price growth. The best time to buy a property is without a doubt now – prices will not go down any longer,” CEO of real estate firm Next Reality Robert Hanzl told financial news site Finmag.cz.

Indeed, apartment prices for purchases in the Czech capital rose 6 percent quarterly in the Czech capital at the end of 2023 after the ČNB removed major obstacles to obtaining a mortgage in the country.

Analysts expect apartment price growth of around 5 percent in the capital this year and slightly lower rates in other Czech regions. The current price of an apartment per square meter (m²) in Prague is CZK 152,000; a 60 m² apartment costs CZK 9.1 million currently.