Czech National Bank Considers Easing Conditions for Mortgages

Many potential mortgage applicants are discouraged by high-interest rates, which slightly increased to an average of 5.89% for new mortgages in April. Some individuals cannot obtain a mortgage due to income limits imposed by the Czech National Bank (CNB), which were tightened two years ago. However, central bankers are now considering softening these limits and are expected to decide during their meeting in early June.

Banks and building societies granted mortgage loans worth CZK 10.6 billion in April, 16% less than in March, according to data from the Czech Banking Association. Year-on-year, the volume of granted mortgages decreased by 40%.

CNB Vice-Governor Jan Frait stated two weeks ago that “discussions regarding possible adjustments to credit indicators in an environment of increased interest rates are relevant.” The central bank’s spokesperson, Petra Krmelová, mentioned that a decision would be made during the financial stability discussions on June 1.

The CNB tightened mortgage limits two years ago, effective April last year. The loan-to-value ratio (LTV), the ratio of the mortgage loan amount to the appraised property value, was reduced to 80% from the previous 90%. The 90% limit applies only to applicants under the age of 36. The central bank also reintroduced income limits for mortgage applicants, including the debt-to-income (DTI) and debt-service-to-income (DSTI) ratios.

Jan Brejl, Director of Business at Partners Financial Group, commented that reducing DTI/DSTI limits will likely increase the availability of mortgage loans, especially in larger cities, allowing more applicants to obtain loans. However, he believes a more significant market boost could come from relaxing the limits on mortgages above 80% LTV.

David Mencl, Director of Ekonomické stabby, mentioned that people are currently waiting for more favorable conditions before pursuing mortgages, and Hendrik Meyer, CEO of Bezrealitky, expressed the belief that easing the DSTI parameter could attract thousands of new mortgage applicants and potentially lead to a rise in property prices.