Mortgage Rates Fall Below Six Percent

After a year and a half, Czech mortgage rates have fallen below the six percent mark. According to the Swiss Life Hypoindex, the average mortgage rate offering in January fell by six-hundredths of a percent to 5.96 percent. This occurred even as the Czech National Bank lowered its base interest rate by a quarter to 6.75 percent in December. While the largest banks are significantly reducing their savings account rates, the reduction in mortgage rates is noticeably milder.

“Mortgage rates’ noticeable decrease may be a reaction to banks adjusting to the new compensation rules for early mortgage repayment,” said Swiss Life Select analyst Jiří Sýkora. They can collect a new fee from September, only half of what they initially lobbied for.

The banks initially pushed for two percent of the repaid amount, but lawmakers decided it would only be one percent. Banks have spoken about creating a giant safety net for associated losses if this amount is less than two percent, Sýkora explained.

According to him, this safety cushion is created precisely by a higher interest rate at the expense of all new clients. “However, it can be expected that the mortgage interest rate will continue to decrease in the coming months gradually,” he added.

The monthly mortgage payment on a loan of 3.5 million CZK, arranged up to 80 percent of the property price with a maturity of 25 years and an average offer rate of 5.96 percent, fell by 117 crowns in January to 22,472 CZK. This is a decrease of more than 800 CZK compared to last January.

In January, more substantial decreases were recorded for mortgages for young people up to 36 years old, which banks can provide even above 80 percent of the property’s pledge value (LTV). Mortgages fixed for three and five years have become cheaper by 0.21 percentage points to six percent and 5.93 percent per annum, respectively. However, the most affordable mortgages on the market continue to be those with a five-year fixation and an LTV of up to 80 percent.