The high volume of refixed mortgages this year stems from the previously popular five-year interest rate fixation in combination with the tightening of the conditions for obtaining a loan, which the Czech National Bank introduced in the fall of 2018. Many people sped up their purchases then.
According to CNB statistics, people borrowed during 2018 at rates between 2.26 and 2.90 percent. This year’s refixation will be more than twice as expensive for them, given the rates of around six percent. “I do not expect a dramatic increase in the number of defaulted loans. It is more likely that people will let investment properties,” says Jan Brejl, business director of Partners.
However, a more dramatic situation will also affect borrowers financing their own housing with a mortgage. “For the vast majority of refixing clients, the new interest rates will be a major complication and burden. Even those who bought the property as an investment will have to reassess the situation and think about selling,” says the head of M&M Reality Zdeněk Václavek.
According to him, the office already dealt with a number of requests in this direction at the end of last year. “People were most often interested in cheaper housing in a similar location, which they could exchange for their existing apartment burdened with credit,” adds Václavek.
Part of the new apartments may come onto the market due to sales forced by banks, although experts do not expect this to be a wider phenomenon. “It is associated with additional costs and problems for the borrower. However, it can be expected that even these cases will occur and will appear to a greater extent than at other times,” predicts 4fin consultant Jiří Ušjak.
It hasn’t been a mass problem yet. “These are cases in the order of one percent, we expect the same situation this year as well,” reminds Vojta Ostatek, a mortgage expert at Broker Trust Libor.
However, this year is slightly more favorable in terms of interest rate shock than last year, when the difference between the old and new mortgage rates was more than four percentage points. “This year, this difference is decreasing, we are moving around three and we are heading towards 2.5 percentage points at the end of the year, so the problem is decreasing,” emphasizes Ostatek.
In addition, according to the March statistics of the CNB, discipline in repaying mortgages remained at a record high in February, when on average only less than six borrowers out of a thousand defaulted.
Banks partly cushion the shock of refixing clients with a preferential rate, thereby protecting themselves from client migration to competitors. “When refixing, banks give existing clients the lowest rates, now, for example, the five-year rate is usually already around 5.69 percent,” Ostatek adds, adding that as a result, it is not worthwhile for clients to refinance the loan.
In addition, refinancing, i.e. switching to another bank, is associated with a new screening of the applicant. “Clients must again document income for the purpose of assessing the loan for refinancing. So the income that was enough to get a loan five years ago may not be enough to get a loan for refinancing,” points out Brejl.
Experts expect that banks will provide mortgages for 110 to 130 billion crowns this year, which would mean another drop year-on-year. For the entire year 2022, according to Hypomonitor, banks and building societies provided mortgages in the amount of 197 billion crowns, of which pure new loans without refinancing amounted to 162 billion crowns. Compared to 2021, this meant a drop of 64 percent for all mortgages and 57 percent in the case of truly newly granted loans.
