Czech mortgages are still getting cheaper, and a record year is within reach

The Czech mortgage market continues to see lower interest rates and break records. The amount of people taking out mortgages in August was very high, setting a record for the month.

The average interest rate on mortgages has been falling for the fifth month in a row. While the average rate fell by another nine basis points in May and June, in August it fell by only four basis points to 2.11%, according to the Fincentrum Hypoindex.

In August, banks provided 6,868 mortgages for 19.173 billion CZK. Although the volume of mortgages provided fell by almost 2.5 billion CZK compared to July, this August became the strongest eighth month in the history of Fincentrum Hypoindex.

The average mortgage rate rose to a new all-time high in August. Compared to July, it increased by 46,396 CZK and reached 2,791,673 CZK. After a slight decline in July, growth came again. This confirms that the growth of real estate prices is still not slowing down.

“Although the total volume of provided mortgage loans decreased compared to previous months, from a year-on-year point of view this is a result that, with its value of 19.17 billion CZK, determines that this August became the most successful eighth month in the history of Fincentrum Hypoindex,” Jiří Sýkora, a specialist in the product management department of Fincentrum & Swiss Life Select, said in a press release.

“One of the factors that has an impact on these numbers is the continuing increase in the value of real estate, which corresponds again (after a monthly break) to a record average loan amount of 2,791,673 CZK. And so the only declining value is the average mortgage rate, which after five declining months ‘stopped’ at 2.11 percent,” Sýkora said.

The volume of mortgages provided in the first eight months of this year has already exceeded 150 billion CZK. Mortgage banks are within reach of exceeding the 200 billion CZK limit.

If mortgage banks keep the volumes of mortgages provided at the level of the summer months, they could even approach records from 2016 and 2017, when they negotiated mortgages worth more than 225 billion CZK.

Since January 2019, when the average mortgage rate climbed to 3% from historic lows at the end of 2016, the average rate has fallen by 0.89 percentage points. The continuous decline in the average rate since the beginning of last year has been disrupted only by the first quarter of this year, when the average rate rose by 0.1 percentage point over three months.

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However, the price of money on the financial market is gradually rising, and the scope for further cheaper mortgages is closing. In addition, banks are uncertain about the end of the repayment moratorium, which may mean an increase in the number of clients who will not be able to repay mortgages.

Rates are unlikely to fall more sharply in the autumn, according to Fincentrum’s analysis of the market. Competition may force some banks to partially reduce mortgage rates. However, the widespread reduction in mortgages has apparently already taken place.

The Fincentrum Hypoindex evaluates the development of mortgage prices over time. It is the weighted average interest rate at which new mortgage loans for individuals are provided in a given calendar month. Data is provided by the following banks: Air Bank, Česká spořitelna, ČSOB, Equa Bank, Moneta Money Bank, Hypoteční banka, Komerční banka, Raiffeisenbank, Sberbank CZ, UniCredit Bank.