“Experts debate relaxation of DSTI indicator to boost mortgage market and real estate sales in Czech Republic”

“Credit indicators came back into play last year, and with that came the rise in interest rates. All in all, it had a crushing impact on the mortgage market, this is especially true of the DSTI indicator, which limits the amount of the monthly repayment depending on income,” said CNB councilor Jan Kubíček in an interview for E15.

According to him, the current setting of the indicator limiting monthly loan repayments to 45 percent of the net salary is quite strict. “I can imagine his reduction by five percentage points,” Kubíček added. At a seminar in the Senate at the end of April, Vice-Governor Jan Frait also announced the possibility of discussing the setting of indicators.

“I agree with the relaxation of the limits for young people under 36, which we already advocated in the National Budget Council. However, financial stability is about ensuring that mortgages do not go bad and that banks remain healthy,” CNB councilor Eva Zamrazilová said at a meeting with students of the University of Economics in May.

According to the latest available CNB statistics, on the eve of the reintroduction of the indicator in April last year, roughly fifteen percent of borrowers in the Czech Republic spent between 45 and 50 percent of their net income on loan repayments. It is precisely this part of the market that a possible increase in the ceiling for monthly credit payments would bring back into the game for loans, including mortgages.

“The debate regarding the liberalization of some credit indicators, especially the monthly repayment in relation to income, is rather a wishful thinking of banks and real estate agents, who call for liberalization as compensation for high interest rates,” says 4fin consultant David Krůta.

According to him, the release of this key credit indicator would lead to greater flow of credit and thus to an increase in real estate sales. “The effort of the currently ongoing professional discussion on this topic is to show that even an average family with sufficient income cannot get a mortgage loan because of these limits,” emphasizes Jan Brejl, business director of Partners.

At the current average national gross salary of around 42.5 thousand crowns, the DSTI indicator represents a stop sign for a mortgage with a monthly payment exceeding approximately 16 thousand crowns. Advisors remind that the ceiling is limiting especially in the case of households with higher incomes. “If a family has an income of one hundred thousand kroner, it can spend a maximum of fifty kroner on loan repayments, and at the same time it cannot borrow more than 9.5 million kroner, even though it could manage to repay a higher loan,” reminds Brejl.

An argument for liberalization can be the exemplary repayment of Czech mortgages. According to the regulator’s statistics, at the end of March domestic banks recorded only 0.57 percent of the volume of mortgages. Czechs have defaulted better since at least 2002, when the CNB publishes these statistics.

As economists emphasize at the same time, credit indicators were introduced primarily as a prevention of repayment shock due to rising interest rates. However, the majority of the market agrees that rates will not go any higher in the Czech Republic, so in perspective, the share of mortgage repayments in income may rather decrease.

At the time of their introduction, according to economists, the indicators should have inflated the cushion of prudence in the banking business. After the pandemic pause, the indicators were resumed in 2022 in response to significantly increased shares of loans with high-risk characteristics.