Mortgages are becoming more expensive

The price of mortgages accelerated at the beginning of the summer. According to Fincentrum Hypoindex, the average offer rate for a mortgage loan increased by 0.53 percentage points in the previous month to 6.24 percent on Monday. A month earlier, the average rate rose 0.38 percentage points.

Mortgages with a one-year fix rose the most. Last month, they increased to 6.53 percent. People who take out a new mortgage or whose interest rate fixation is coming to an end will thus again pay significantly more on their repayments, often several thousand crowns.

For example, the monthly repayment of an average mortgage for CZK 3.5 million arranged up to 80 percent of the estimated property price with a three-year fixation, a 25-year maturity, and an average offer rate of 6.24 percent is currently CZK 23,074.

Even as recently as last year, 2%

The average mortgage interest rate in June 2017 was 2.04 percent. Rates reached similar levels in the first half of last year.

According to Czech Banking Association data, mortgage offer prices reached 7% last month.

“Following the Czech National Bank’s jump in base interest rates in June, most banks have already reacted by rising mortgage interest rates. However, perhaps times are looking up, at least after the announcement of the new ČNB governor, Aleš Michl, who said he does not intend to continue raising base rates,” Sýkora said.

However, he added that although Michl does not want to raise base interest rates, the bank board is seven-member, and it is questionable how it will make decisions in the new composition. Since July, the new deputy governor, Eva Zamrazilová, Jan Frait, and Karina Kubelková, have sat on the board.

Rate stagnation

Meanwhile, inflation, which the ČNB’s rate hikes should dampen, has not yet peaked, and economists are anxiously awaiting whether or not central bankers will again decide by a majority for further rate hikes at their August monetary policy meeting.

“I think we can expect at least a stagnation of rates for the next few months, rather than further rate hikes. The question remains whether the more fundamental reversal in mortgage rates, expected according to initial forecasts at the beginning of next year, will not be postponed until at least the second half of 2023, or rather the end of it,” Sýkora said.

Due to a combination of the ČNB’s stricter mortgage limits and high-interest rates, he said, people increasingly face creditworthiness problems with new mortgages. “People are trying to find a solution, even if it means having a mortgage with a higher rate for several years. Often, for example, people use their parents’ income to increase their creditworthiness,” Kašpar said.