Despite hopes for a decrease, banks did not lower mortgage rates in June. The average mortgage rate at the beginning of July stagnated, dropping by only 0.02 percentage points to 5.49 per cent, according to data from the Swiss Life Hypoindex. This small reduction reflects the ongoing challenges in the mortgage market, where rates have seen minimal changes despite significant reductions in the central bank’s base rate.
The current average rate is for a mortgage loan covering 80 per cent of the property’s value. Since February 2023, when mortgage rates peaked at 6.37 per cent, they have decreased by only 0.88 percentage points. In the same period, the Czech National Bank’s base rate dropped by 2.25 percentage points to 4.75 per cent. Banks argue that the high cost of money in the interbank market prevents them from lowering mortgage rates further. However, experts speculate that the upcoming legislative changes regarding early repayment penalties may also play a role.
Starting in September, banks will be able to charge a fee of 0.25 per cent of the prematurely repaid portion of the loan for each year remaining until the end of the interest rate fixation period, up to a maximum of one per cent. This change is expected to reduce banks’ risk of loss, leading experts to predict that mortgage rates may decrease more significantly in the autumn.
The monthly payment for a mortgage of 3.5 million CZK, covering 80 per cent of the property’s value with a 25-year term at the average rate of 5.49 per cent, was 21,475 CZK at the beginning of the summer holidays. This represents a minor monthly decrease of 45 CZK and an overall reduction of about 1,000 CZK since the start of the year. Despite the Czech National Bank cutting the base rate by 50 basis points four times in a row, the reduction in mortgage rates has been slow.
Mortgage analyst Swiss Life Select Jiří Sýkora notes that banks are still very slowly reducing rates. In some cases, they have even increased mortgage rates exceeding 80 per cent LTV (loan-to-value ratio). This particularly affects longer-term fixed rates, with some banks temporarily ceasing to offer ten-year fixed rates. Sýkora advises clients not to delay applying for a mortgage in hopes of lower rates, as significant reductions are unlikely shortly.
Mortgage rates remain high due to the approved maximum early repayment fee falling short of banks’ lobbying efforts. As a result, banks are likely to continue building reserves on each new client, making significant rate reductions improbable. Analysts also warn that property buyers should expect gradual increases in property prices. The Czech National Bank is expected to slow down or stabilize the base rate reductions in the coming months.