Czech mortgage rates inch lower again in April, but house price rises trim demand

By bne IntelliNews May 18, 2016

The average interest rate on Czech mortgage loans fell to a record low of 1.94% in April from 1.97% the previous month, data published on May 18 by Fincentrum Hypoindex show.

Continued monetary easing in the Eurozone and the Czech Republic has intensified competition among lenders, and mortgages are expected to remain under 2% this year and into at least the first half of 2017. However, the trend for cheap money has been pushing prices higher, and appears to now be trimming demand.

"Banks are gradually adjusting their interest rates to expectations that the monetary policies of the main central banks [in Europe] will not be 'normalised' soon, which has led to the ongoing lowering of rates," Fincentrum analyst Josef Rajdl said in a statement.

However, despite the ongoing fall in the cost of borrowing, the volume of new mortgage loans fell to CZK17.06bn (€630mn) in April, a drop of CZK846mn from the previous month. Overall, 333 fewer loans were signed than in March, signalling that consumer demand for mortgages may be easing as housing prices rise. 

The average price of a newly-built flat in the Czech capital increased 8% y/y in the first quarter, pushing it to the highest level since 2009, according to a joint analysis released on April 20 by some of the country’s biggest developers.

According to Fincentrum, which has been monitoring interest rates on mortgage loans since 2003, clients are looking to secure fixed rates for the longest periods possible in the belief that rates will rise in the medium term. 

However, in the Czech mortgage market, while some banks reduced interest margins on riskier loans and eased conditions such as loan maturity, there was some tightening, as loan-to-value ratios have been trimmed, a CNB quarterly survey released on April 18 showed. That trend is expected to continue in the second quarter.

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