Mortgage market under the spotlight

It can already be said with certainty that 2021 will go down in mortgage history as a record year - whether in terms of the volume of mortgages arranged due to huge interest or above-standard interest rate increases. We will now take a closer look at the various factors that have shaped the mortgage market in recent months and will also be reflected in the period ahead.

Mortgage market 2021


Interest in mortgages has not waned and is not waning. People are afraid of the gradual increase in prices and tightening and are still trying to take advantage of the most favourable conditions at the last minute. Although the number and volume of mortgages is slowly declining, the market has already surpassed the 300 billion CZK mark in mortgage loans in September, significantly surpassing the record first nine months of 2020, when volumes reached just over 173 billion CZK. In 2021, the final figure will certainly climb to over 400 billion CZK. What is behind this unprecedented wave of interest?

To a large extent, the rise in mortgage rates, which continues to accelerate. Interest rates of around 2 percent at the start of 2021 are now a thing of the past, with the vast majority of banks now offering figures starting at four. And experts say we will see average rates of over 5 percent in the first half of 2022. The main reason for the Czech National Bank raising the base rate has been the fear of inflation, which could reach 7 percent in the coming weeks. The latest adjustment was made on 22 December, by one percentage point to 3.75 percent. The base rate last reached this level in 2008.

"Rising interest rates will have an impact on the granting of new mortgages - the number of applicants who dare to make higher repayments will understandably be lower. But equally, higher interest rates will hit those taking out current mortgages at favourable rates. If they increase, it can be expected that a relatively large number of people will not be able to meet their obligations and after some time, when they exhaust the possibilities of help with financing, for example from extended family, banks will have to deal with non-performing loans," says Jiří Kučera, director of the real estate agency Luxent - Exclusive Properties.


Czech Mortgage Market 2021


What's next?

In addition to the gradual increase in interest rates, the CNB has also tightened the conditions for obtaining a mortgage - from April 2022, the ratio of the mortgage loan amount to the value of the mortgaged property (LTV) will be reduced from 90% to 80%. Applicants will thus need at least 20% of their own resources from the final amount of the property. In addition, the DTI and DSTI ratios must again be adhered to when approving a loan, which will give banks greater confidence that the client will repay everything. The more lenient criteria will only apply to applicants up to 36 years of age.


Pod Rybníčkem Residence, Prague 6 - Suchdol

Source: Luxent, Pod Rybníčkem Residence, Prague 6 - Suchdol

Although the reintroduction of these limits brings us back to the original situation before spring 2020, property prices have risen significantly in that time. In November, for example, the average mortgage amount was around 3.5 million CZK. According to experts, a lot of applicants will have a hard time getting a loan. And the situation on the real estate market will certainly not bring relief. "We expect that the growth in housing prices will continue in 2022, but probably at a lower pace. Selected properties, especially flats in Prague or Brno, are still a very scarce commodity. Supply has been significantly skewed against demand for many years and, given the current state of legislation, this cannot be met by simply increasing the number of completed apartments. Demand will not fall either," says Jiří Kučera, adding: "We can expect shocks in the form of mortgage defaults, as the economy and households are facing difficult times, and a drop in demand from families who will not be able to afford to buy for their own use, but this shortfall on the demand side will be sufficiently compensated for. This will be done by the existing, very strong investors and also by the mass of smaller investors who have finally decided to use their money in a sensible way because of rising inflation. And today, real estate is the number one priority for such investors - it is tangible and investing in it is understandable, and it is liquid. Of course, they do not yield as much as they used to because of their high purchase prices, but with inflation on the rise, every percentage point is welcome."

The exception to the rule is luxury properties, which form a distinct part of the property market. These include, for example, historic properties, luxury villas and houses or unique residential apartments in Prague, in which Luxent - Exclusive Properties specialises. According to its director, prices are determined on the basis of a special set of parameters and even the turbulent development of the mortgage market will not affect their purchase and sale too much: "In the higher segment, the share of purchases financed by mortgages is only 10% to 15%. Sometimes, of course, we also see refinancing later on."


Garden Lofts Residence, Prague 5

Source: Luxent, Garden Lofts Residence, Prague 5

Are you interested in further developments on the mortgage market? Not sure if now is the right time to buy or sell a property? Are you considering investing in a home? Or are you looking to fulfil a dream and enquiring about an exclusive property? We will be happy to advise you directly in our luxury office Luxent - Exclusive Properties at Pařížská 28, Prague 1. Of course, we are also available on the phone or online.

Life & style

News from the world of real estate