Mortgage Rates Drop, But Savings Accounts Weaken

After more than a year of steep increases, mortgage rates in the Czech Republic have started to decline significantly. According to Hypoindex, the average rate has dropped to 5.6%, down from over 6% a year ago. Moreover, the rates are expected to continue falling, potentially saving homeowners thousands of crowns per year in monthly payments.

On Thursday, the Czech National Bank (ČNB) noticeably slashed its base rate, which commercial interest rates are derived from. This move, however, also means that interest rates on savings accounts will start to drop. The monthly payment of a mortgage loan of three and a half million crowns contracted up to 80% of the estimated property value with a maturity of 25 years and an average offer rate of 5.6%, fell by 761 crowns this month to 21,710 Kč, highlighted Jiří Sýkora from Swiss Life Select, which prepares Hypoindex.

Banks are also anticipating a further decrease in mortgage rates. “Based on our expectations, mortgage rates may start with a four this year. However, the decline in mortgage rates will be more gradual than rapid,” confirmed Michaela Průchová from ČSOB. This trend is backed by analysts who expect the rate cuts to continue.

However, the growing availability of mortgages carries a fundamental paradox. “Any larger drop in mortgage rates reduces the chance that households waiting to acquire quality housing, perhaps in Prague, will reach it – it will get more expensive in front of them. The more mortgage-capable applicants, the more expensive flats, and the more overpriced the offer,” added analyst Martin Machala from Ownest.

In contrast to housing loans, rates on savings and term accounts, where most people have put their extra money in an attempt to protect it from inflation, should fall noticeably faster. Some banks have already lowered savings account rates in recent weeks. For example, Oberbank has already lowered interest rates on savings accounts from four percent in January to 2.75 percent, and J&T Bank from 5.25 to five percent.