“According to our calculations, the impact will not be significant in terms of making access to credit inaccessible and dramatically reducing the mortgage market. We do not think that it is an obstacle to the provision of normally provided loans. It will undoubtedly be an obstacle for a small part of mortgage loans, namely those that are potentially the most risky, “commented its governor Jiří Rusnok at the press conference of the CNB’s decision.
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At the same time, the bank pointed out that people under the age of 36 will have more lenient limits for providing a loan to buy their own housing. The DTI limit, ie the applicant’s total debt expressed in multiples of his net annual income, will be 8.5 from April. For young people under 36 it will be 9.5.
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The limit of the DSTI indicator, ie the ratio between the total amount of monthly loan repayments of the loan applicant and his net monthly income, will be 45 percent. For young people it will be 50 percent. The central bank stopped applying the DSTI indicator and the DTI indicator last June.
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At the same time, the Central Bank stated that apartment prices in the Czech Republic were overvalued by an average of about 25 percent in Q2. For investment apartments it is even over 30 percent.
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The ratio of the amount of the mortgage loan to the value of the mortgaged property (LTV) has so far been 90 percent. The Bank Board did not change this value even after the May meeting. At that time, it also decided that there was no need to renew the limits for the provision of mortgages or to tighten other parameters for their provision. She also pointed out at the time that apartment prices in the Czech Republic are overvalued by an average of 18 percent.
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More money will go into reserves
The CNB has also decided that banks will pay more money into reserves to protect the credit market. Since January 2023, it has increased the so-called countercyclical capital buffer rate to two percent. In August, the CNB Board increased the reserve to 1.5 percent with effect from October 2022, before that it increased it to one percent with effect from July 2022. Currently, the applied rate is 0.5 percent. It applies to all banks, savings and credit unions as well as securities dealers.
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At the same time, the CNB stated that if the rapid dynamics of lending in the private non-financial sector continued and the risks in the banking sector’s balance sheet increased and its vulnerability increased, the Board was prepared to increase this rate further. On the contrary, in the event that the economic situation deteriorates again, it is ready to gradually reduce the rate or completely dissolve the reserve.
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