Czech National Bank Eases Mortgage Rules Starting January

The Czech National Bank (ČNB) is set to relieve banks of some restrictions on providing mortgages. Starting in January, banks will no longer be obligated to apply the maximum limit of the applicant’s total debt to his annual income (DTI). However, the central bank has retained the second indicator – the maximum ratio of the mortgage loan amount to the value of the pledged property (LTV) – at the same level.

Member of the ČNB banking board, Karina Kubelková, stated after Wednesday’s meeting, “In an environment of significant macro-financial uncertainties, the risk of a more significant drop in property prices persists, which still requires the operation of the LTV indicator.” She noted that higher interest rates and subdued mortgage activity significantly limit the risks associated with the level of applicants’ incomes. The management of these risks is now entirely left to the providers.

Previously, the total debt limit of the applicant expressed in multiples of his net annual income was 8.5, and for applicants under 36 years, it was 9.5. The ČNB decided to abolish it, as higher interest rates limit the risks associated with the level of applicants’ incomes. Therefore, the management of these risks can be directly left to the mortgage providers.

Since July, the ČNB has stopped requiring the application of the limit of the amount of debt repayments to net monthly income (DSTI). The only limit that remains in effect is the LTV, which will continue to be 80 percent, and for applicants under 36 years, it’s 90 percent.

In the same meeting, the banking council also left the rate of the countercyclical capital reserve for the protection of the credit market unchanged, which is two percent. Banks and other credit institutions must create this reserve as a defense against risks arising from excessive loan growth. It could slow the growth of loans, especially the riskier ones.