Mortgage Rates in the Czech Republic Head Towards 4%

In a recent development, the Czech National Bank’s drop in February rates has set off another wave of mortgage reduction. Banks are primarily reducing interest rates for shorter fixes, while some have even stopped offering longer ones. The average mortgage rate could fall to four percent this year, saving people hundreds of crowns on their monthly installment compared to rates in the last year and a half.

Last year, some mortgage rates climbed to seven percent, but at the beginning of this month, the average rate, according to the Hypoindex indicator, dropped to 5.6 percent from January’s 5.96 percent. The monthly mortgage installment for a loan of 3.5 million crowns, contracted to 80 percent of the property price with a maturity of 25 years and an average offer rate of 5.96 percent, has dropped by more than 800 CZK year-on-year in January.

However, several banks already offer under five percent in their portfolio, and analysts expect a further decline. Following the December reduction of their rates, from which mortgage interest rates derive, the CNB also cut them at the beginning of February. The basic interest rate dropped sharply by half a percentage point to 6.25 percent, and the banks reacted again.

The trend that began at the end of last year, a gradual and long-term drop in rates, is expected to continue throughout this year and probably the next, leading to mortgage rates moving between three and four percent, according to Swiss Life Select analyst Jiří Sýkora. By the end of this year, he expects rates between four and 4.5 percent.

The reduction of loans, according to Sýkora, will increase interest in new mortgages and refinancing existing expensive mortgages. “The growing interest in buying properties, caused by cheaper mortgages, will almost certainly lead to an increase in the prices of properties intended for housing. This, in turn, may slow down the mortgage market,” he noted.

In conclusion, there’s a clear trend of banks moving towards shorter fixes, with some offering interest rates as low as 4.69 percent. With property prices rising, now might be the best time to consider taking a mortgage as they could save significantly on early repayments.