Therefore, the average interest rate could climb up to five percent next year.
The CNB’s jump in interest rates in November also surprised experts and made mortgages more expensive. Nevertheless, the Czech National Bank is ready to continue raising rates. He will have the opportunity to do so next week, Wednesday, December 22, at his last monetary policy meeting this year. The market expects rates to rise by up to 75 basis points. Next year, rates could approach the 3.5 percent mark.
By raising interest rates, the CNB is trying to curb inflationary pressures. Inflation has already climbed to six percent this year, and could grow similarly next year. According to the CNB’s forecast, inflation could not fall until 2023, which means that we will not miss further mortgage prices.
Mortgage rates will rise sharply in 2022
The increase in interest rates by the CNB will gradually be reflected in the interest rates offered by banks. After all, the increase in interest rates on mortgage loans began this year. According to Fincentrum Hypoindex, the average mortgage rate has been rising for the ninth month in a row, reaching 2.7 percent in November 2021.
However, the current rates of the Hypoindex do not correspond to market practice; mortgage rates in most banks have already exceeded four percent. The reason for this discrepancy is mainly the mortgage agreements of clients, which the banks started negotiating a few months ago under even more advantageous conditions.
“Fincentrum Hypoindex’s average interest rate in November is slowly catching up with banks’ bid rates and is approaching the 3% mark with 2.70 percent, and it is clear that it will continue to rise,” said Jiří Sýkora, Fincentrum & Swiss’s mortgage analyst. Life Select.
It is therefore possible that next year we will even see mortgages with an interest rate approaching five percent. At the same time, such interest rates were last in 2009. At that time, mortgages averaged 5.6 percent. In 2023, the CNB’s main interest rates should subsequently stabilize and fall, which could also be reflected in mortgages.
Interest in mortgages is not declining yet
Although interest rates on mortgages were already rising during this year, this has not yet manifested itself in the interest of arranging a housing loan.
In November, banks arranged 11,369 mortgage loans, which was 13 percent more than in October and 22 percent more than a year ago. They provided a higher number of mortgages in November only in 2016, namely 14,386. In total, from January to the end of November this year, banks arranged mortgages for more than 392.6 billion crowns.
However, it can be assumed that as soon as the jump in rates is reflected in mortgage interest rates, the number of mortgage applicants will decline rapidly. But we won’t see it in months, because people want to take out loans in time before they become more expensive, and some are already in the process of negotiating a loan, “says Dominik Stroukal, chief economist of the payment institution Roger.
There are even pessimistic scenarios that the mortgage market could fall by as much as 50 percent next year. Refinancing would dominate the market.
Not only new mortgages will become more expensive, but also ending fixations
However, rising interest rates will not only be reflected in newly negotiated mortgages. Right now, the popular fixation for 5 years is ending for many households that took out a housing loan in 2016–2017, when interest rates were at a minimum. At that time, households received a guaranteed interest rate of around two percent, while now most banks can obtain a rate of around four percent. And next year it will be even worse, the average interest rate will go one percentage point higher. The main reason will be the CNB’s response to rising inflation in the form of an increase in the two-week repo rate.
And next year, the shock of the rate hike will be even more painful. Installments for some households can increase by thousands of crowns. “It is a disaster in itself for many people, but unfortunately it comes at a time of high inflation, rising energy prices and uncertainty from other lockdowns. It’s not just about rising rates, but in combination with other uncertainties and the costs of the current situation, it can be tragic, “concludes Dominik Stroukal.
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