News Article Czech Republic report residential
by Property Forum | Report

The path to cheaper mortgages, and more affordable housing, is still not easy in the Czech Republic. According to the Swiss Life Hypoindex, the average offer rate of mortgage loans in the Czech Republic has reached 5.52% p.a.

This is the lowest rate since May 2022, but with this slight reduction, the average mortgage rate has risen above the main interest rate of the Czech National Bank (CNB), which is now 5.25% after the May reduction. While the Czech National Bank reduced the two-week repo rate by 1.5 percentage points this year, the bank's interest rate on mortgage loans by only half a percentage point (according to the Swiss Life Hypoindex).

As Jiří Sýkora, the Specialist in the Product Management Department at Swiss Life Select, explained, banks are maintaining a trend of a slight decrease in interest rates. This pace is also because banks create a buffer for cases where the client pays off the loan early. The amendment addresses these situations to the Act on Consumer Credit, which introduced a ceiling for the fee for such early repayment. Unfortunately, the legislators did not listen to the suggestions of economists and reduced this fee to an amount that did not cover the costs of providing finance to banks.

Therefore, banks have to create a reserve themselves. "This reserve is created through higher basic mortgage rates for all clients. Although some experts are discussing that mortgage interest rates could start to rise, this has not yet happened and the trend shows a predicted very gradual decline. This month it was another 5 basis points to the current value of 5.52% p.a.," added Jiří Sýkora.

The monthly repayment of a mortgage loan for CZK 3.5 million (€140.000) agreed up to 80% of the estimated value of the property (LTV) with a maturity of 25 years and an average offer rate of 5.52% p.a. was CZK 21,540 (€864) in May. The rate for a ten-year fixation above 80% LTV rose to 6.01% p.a. in May. Rates for a ten-year fixation below 80% LTV also rose from 5.77% to 5.82% p.a. The rates for three- and five-year fixations are above 80% LTV. The others fell slightly, the most advantageous is now a three-year fixed rate below 80 LTV with 5.25% p.a.

The CNB presented a new macroeconomic forecast, which, compared to the February version, predicts slightly lower inflation this year and, on the contrary, higher economic growth this year and next. However, according to J&T Bank, the significant change concerned the forecast of the development of interest rates, when the new forecast at the beginning of next year expects rates of around 4% (so far 2.5%).