Leaving with a mortgage can be expensive, admits the head of the largest Czech bank

Going to the competition for a cheaper mortgage has never been easier. And when interest rates start moving, some clients will want to look elsewhere for better interest rates. So far it’s almost free.

The vast majority of Czech banks “fine” leaving before the expiry of the fixation only symbolically, in the form of one hundred crowns, at most low thousands. However, there is a proposal for an amendment on consumer credit that wants to punish defaulters in mortgages more severely. The bank could ask the client for up to 2% of the remaining principal of the unpaid loan.

Consumers will be upset, but according to Tomáš Salomon, CEO of Česká spořitelna, there is no “drama”: “From the point of view of today’s regulation, the departure of the client will be more expensive, from the point of view of the recently valid standard, it is still significantly more advantageous for the client than it used to be.” Back then, the rates were up to 5% of the principal,” he told SZ Byznys.

The banks claim that the conditions under which the client is allowed to leave before the expiry of the fixation are now unclear. Some banks continue to charge clients much higher amounts than just administrative costs. The Czech National Bank fined Unicredit Bank ten million crowns for this in January this year. Last year, the CNB fined Komerční banka together with its building savings bank Modrá pyramida a total of 12.5 million crowns.

According to Tomáš Salomon, the amendment will level the market: “It’s not lobbying. The legal regulation that applies is very general and does not establish the conditions under which it is possible to cancel and terminate the contract. If the amendment reaches the Parliament, the conditions will be clarified,” says Salomon.

Banks argue that client departures cost them money. And not only on administrative costs, which will be covered by the current low fine. It bothers them that if the client pays off the mortgage early before the end of the interest rate fixation, she must continue to pay interest on the expensive money she borrowed for his mortgage in times of high interest rates.

So when capital market rates fall in the meantime, the bank loses out. Even if she lends money to someone else, she lends it cheaper than how much she borrowed it herself. Conversely, when capital market rates rise, the bank earns.

“When the fee is zero, external intermediaries or clients themselves, we can call them interest rate tourists, do not feel in any way bound by a contract with the financial institution that provided them with a mortgage. This is not correct, because the banks actually incur costs for early repayment, it is not a fiction,” argues Salomon.

Salomon was unable to calculate how much the departure of clients for another mortgage costs the bank. A percentage of clients switch between banks before the expiry of the unit fixation. “It can be units of percent. When rates go up, it’s rare, in a situation when rates go down, it pays off for some of them,” said Salomon.

When will the mortgage market get going again? And when will mortgages get cheaper? Listen to the full interview in the video above.