In January, the average interest rate according to the Fincentrum Hypoindex indicator reached 3.43 percent. Compared to the December value, it increased by 44 basis points, which is the most rapid month-on-month increase in the average mortgage rate since 2003.
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The January average rate is the highest in ten years, at a similar level in September 2012 (3.46 percent).
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Current rates are already around five percent
“However, it must be said that the January average mortgage rate is now a thing of the past, as it includes mortgages negotiated more than two months ago. Since then, however, there has been a further significant increase in the CNB’s key interest rate, so those who take out a mortgage today have to reckon with rates averaging around 4.5 to five percent, ”added Lukáš Kovanda, Chief Economist at Trinity Bank.
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Mortgage rates should gradually move towards the 5.5 percent mark this year
economist Jakub Seidler
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“Mortgages for less than two percent a year could be purchased in some banks last summer, but at present the mortgage rates are already approaching, and in some banks even exceeding, the limit of five percent,” said Jiří Sýkora from Fincentrum & Swiss Life Select.
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A decline in rates is not expected
Rising inflation and rising CNB rates are the main “culprits” in raising mortgage prices. “The CNB must respond to inflation. Along with the growth of the CNB’s key interest rate, other, market interest rates are rising, making the resources with which they cover their mortgages more expensive for banks, ”Kovanda explained.
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The average mortgage rate will continue to rise. The CNB is likely to increase rates, although probably not so sharply, and the higher the rate, the higher the average mortgage rate. Until recently, economists and banking specialists assumed that mortgage interest rates would reach a maximum of about 5.5 to six percent this year, now, according to Kovanda, estimates that rates could attack even seven percent are no longer an exception.
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“Mortgages would thus be more expensive even than in 2008 than the effects of the global financial crisis were felt in the Czech Republic,” Kovanda added.
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“Market interest rates with longer maturities, which are important for the development of mortgage rates, are currently at the highest level since 2008 and 2009. At that time, the average mortgage rate on new mortgages was around 5.5 percent, according to official CNB data. Mortgage rates should gradually move towards this limit this year, ”said Jakub Seidler, chief economist of the Czech Banking Association.
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Decline in volumes and numbers
The year 2021 was quite exceptional from the point of view of the provided mortgages. Almost 178,000 mortgages were provided in a record volume of 541 billion crowns.
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No records are expected this year, at least in terms of the number and volume of mortgages provided. The development was already indicated in January, when banks and building societies provided mortgages worth 32.6 billion crowns, which is a quarter decrease compared to December 2021. Despite the fact that January is traditionally weaker compared to the end of the year in terms of mortgages, the month-on-month decline of almost 12 billion crowns goes well beyond the normal January slowdown.
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The number of mortgages provided is also falling, with banks and building societies providing around 10,000 in January, which is at least in almost a year and a half. In a month-on-month comparison, this is a decrease of 28 percent.
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Tightening mortgages since April
The January development thus indicates that more and more Czechs are abandoning the intention to buy their own housing. Interest in mortgages is declining because people just don’t have them anymore.
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“Today, the monthly payment on a regular mortgage is even five thousand crowns higher than if they had taken out a mortgage on the same, also ordinary real estate a year ago,” Kovanda added.
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Another significant decline in demand for mortgage loans is thus more than likely. “The mortgage market is likely to cool more significantly in the coming months. Interest rates are rising and rising. In addition, stricter conditions for providing mortgages will apply from April, which will prevent some applicants from obtaining a mortgage, “added Sýkora.
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