Get in debt now, it will be worse, banks whisper. Mortgages are extremely cheap

According to the Fincentrum Hypoindex indicator, the average mortgage interest rate fell in November for the eighth month in a row, to 1.98 percent. It thus fell below the threshold of two percent, where it last looked in March 2017. The number of provided mortgages increased by 523 to 9323 compared to October.

“The sleepy mortgage ride continues despite the coronavirus crisis. With the volume of mortgages provided of almost 27 billion crowns, November is one of the most successful months ever,” responds to Jiří Sýkora’s numbers from Fincentrum & Swiss Life Select.

According to him, the ever-rising real estate prices on the Czech market are also reflected in the increasing average mortgage amount, which already reaches 2,887,178 crowns.

At the November meeting, the Czech National Bank left interest rates unchanged and did not change the restrictions on mortgage loans, and the countercyclical capital buffer rate remained the same.

“Nevertheless, banks are no longer falling at the same rate as in previous months. The main reason is the price at which banks obtain money for further lending on the interbank market. And it was the price of money that began to rise rapidly during November. But that does not necessarily mean mortgages The competition in the mortgage market is very strong and the uncertainty associated with the coronavirus crisis persists, so mortgage rates could rather stabilize at the current level in the near future, “says Jiří Sýkora.

Lukáš Kovanda, an economist at Trinity Bank, is more skeptical and is convinced that the era of coronavirus cheaper mortgages is coming to an end due to more expensive bank resources. “It is probable that mortgages in the Czech Republic will not become too cheap and that they will start to rise in price again in the first half of next year. On average, their rate is now around two percent. It cannot be bet that it will fall below its record low level in 2016 , when, on average, mortgages were available for less than 1.8 percent, so those who are waiting for mortgages to become even cheaper, will probably not see, “says Kovanda.

He adds that cheaper mortgages drive enormous interest in buying real estate. Even due to available mortgages, real estate in the Czech Republic continues to rise in price, by tens of percent year-on-year.

“People in the Czech Republic are investing heavily in real estate for reasons other than cheap mortgages. They realize that at a time of low interest rates, real estate income, for example around four or five percent a year, is an even more attractive alternative. They also fear higher inflation. “The money stored in real estate is better protected from inflation than that deposited in a savings or term account,” says Kovanda.

And he sees even more people interested. “Some people are also worried about losing their jobs in the coming period, or a deterioration in their financial situation, and thus that the bank would no longer have to provide them with mortgages,” adds Kovanda.

This is exactly what David Eim from Gepard Finance also points out. “Especially for the self-employed, the aspect of creditworthiness may be important next year. The coronavirus crisis has reduced the income of many entrepreneurs, which will be reflected in the tax return, which applicants will prove to the bank next year,” says Eim.

Although the CNB significantly reduced previous restrictions in response to the coronavirus crisis, banks maintained a prudent, conservative approach. Some banks maintained the restrictive parameters, others gradually relaxed them, but practically all without exception introduced various restrictions, responding to the economic effects of the coronavirus epidemic.

“Randomly, it is mainly a matter of limiting the eligibility of income from the most endangered fields, such as tourism, the operation of restaurants, bars, cultural or sports activities, but also the aviation or even the automotive industry,” says David Eim.

However, the restrictions do not only apply to employees, especially with a fixed-term contract, but mainly to entrepreneurs. “With business income, we’ve even begun to see an unprecedented mark-up on the interest rate for being a source of business income,” says David Eim.

Banks, of course, differ in their approach, so income from vulnerable areas does not automatically mean a stop sign. However, it can bring more work in finding a suitable solution and probably also more careful examination by the bank.

Veronika Hegrová from Hyponamir.cz believes in a certain cooling of the mortgage market. “The development of the situation on the labor market will largely determine how tangible it will be. If people lose their job security and are therefore at risk of their regular income, their willingness to borrow for their own housing will fall. Although unemployment in the Czech Republic was in October at just 3.7 percent, worse times are likely to await us, as various supportive ‘covid’ government programs to maintain jobs in companies will soon end and sooner or later redundancies will occur, “says Veronika Hegrová.

Adverse developments in the labor market will also lead to a deterioration in the availability of mortgages. Significant redundancies will lead banks to be even more cautious about the recognition of corporate income, which will reduce stocks.

Veronika Hegrová adds: “With rising unemployment, not only interest in housing loans from clients may decrease, but also the willingness of banks to provide mortgages. Further tightening of conditions for obtaining a mortgage is not ruled out. Interest rates could also rise gradually, as banks will be more concerned about higher levels of non-performing loans and will therefore create a sufficient financial cushion to cover non-performing mortgages. “

In November, only Equa Bank and Moneta Money Bank decided to reduce mortgage rates. Creditas Bank increased the rates of shorter fixations and reduced the rates of longer fixations. At the beginning of December, the cheapest mortgages on the market include those from Fio banka (interest rate 1.58%), mBank (1.64), UniCredit Bank (1.69) and Sberbank, Equa, Moneta (1.89).

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