Why Czech Mortgage Rates Are Soaring: A Comparison with Austria, Germany, and Slovakia

According to the Swiss Life Hypoindex, the average mortgage offer rate in the Czech Republic is 5.34 percent. They are better off in other countries. In Austria, according to its national bank, the average housing loan rate is 3.85 percent, in Germany, according to the comparison tool Hypofriend.de, it is still about half a percentage point lower. In Slovakia, you can get as low as four percent for mortgages.

Mortgages are more expensive than in the country with rates of around seven percent only in Poland, but the basic rate of the central bank there is 1.5 percentage points higher than the rate of the CNB. However, the conditions for mortgages are slightly different in each country.

“As far as the euro area countries are concerned, the key rate of the ECB is indeed the base. Like the Czech Republic, the framework determines the price of the currency,” said XTB analyst Jiří Tyleček regarding rates in countries that pay the euro.

Czech banks are still not reducing prices with the argument that the prime price for mortgages is the source from which they finance housing loans. They claim that they are now driven mainly by the rates on the interbank market, known as swaps, which guarantee them the price of money for a longer period of time.

According to Tyleček, currency exchanges in the euro area are less than a percentage point lower than here. “So if banks in the Eurozone should have similar margins to Czech banks, they should offer mortgages about this percentage cheaper,” he said. At least in Germany and the Austria, however, banks offer mortgages with much lower interest rates.

According to CNB Governor Aleš Michl, Czech banks have room for discounting, but they do not want to reduce their margins. Criticism is also being heard from within the banking sector. For example, according to the head of Moneta Money Bank, Tomáš Spurný, the average mortgage on the bank’s “reasonable margin” market should be around 4.3 percent with five-year arrangements and current rates. While a reasonable margin is around one percent, the average margin in the Czech Republic is around 1.7 percent, Spurný said recently List of Messages.

Moneta’s mortgage rate offer has been starting at a rare 3.99 per cent since the end of July. “We can pay a lower margin than the competition because we do not pay high commissions to third parties for trade mediation, and at the same time the processes our interior is largely automated and digital,” Moneta spokeswoman Lucie Leixnerová told Novinka.

People who need a mortgage or whose situation is coming to an end should negotiate the interest rate with the banks. “My bank offered me a rate of 5.49 per cent, fixed for one year. When I wrote to them that I had a better offer, they called me the next day saying they had a rate of 4.79 percent for me. In this way, I will save about 750 crowns on the monthly payment,” Marek Procházka from Prague told Novinka a few days ago.

As for the coming months, experts do not expect mortgage discounts yet. “On the market, we are now seeing an increase in the exchange rates of krone and euro, which increases the probability that we will not see a significant drop in rates even in the medium term,” said Tyleček.

According to Senior Economist Lukáš Kovanda, even the decision of the Czech National Bank to increase the minimum reserves that banks invest with from two to four percent will not help those who are interested in a mortgage.

“At the same time, in October last year, the CNB suspended interest on compulsory deposits. If he now asks the banks to keep twice as many non-interest-bearing reserves, he will take away part of the interest income for the banks,” said Kovanda, adding that this could lead to higher prices for corporate or consumer loans or a slower rate of interest rate reductions directly on mortgages.