The base interest rate remains unchanged. Mortgages are becoming cheaper only gradually
As expected, the Czech National Bank left the base interest rate unchanged at its August meeting. It has therefore remained at 7 % for a year, and is not expected to fall in the foreseeable future. Nevertheless, the average mortgage rate has fallen for the third consecutive month, to 6.19 %. In practice, however, this means that people will pay only a few hundred crowns less.
For illustration, with a mortgage of CZK 3.5 million over a 20-year term, the difference in the monthly repayment is now just CZK 276. According to the Swiss Life Hypoindex, three-year fixed-rate mortgages have seen the most significant reduction. Moreover, as of 1 July, the DSTI indicator is no longer in force; it assessed mortgage applicants based on the maximum proportion their monthly loan repayment could represent of their net monthly income.
“Interest in mortgages is nevertheless not picking up, and the mortgage market has partly frozen. It was originally expected that this would substantially reduce property prices. However, this has happened only for certain types, such as second-hand flats or recreational properties. With a loan of CZK 3.5 million and a 20-year repayment period, the average monthly repayment remains above CZK 23,000, and not many people are willing to commit to that,” says David Novotný of the real estate company Bohemian Estates.
In Prague and other larger cities in the Czech Republic, however, rent is very similar to the aforementioned monthly repayment, and in some places even higher. So why do people not prefer home ownership and a mortgage? According to Novotný, the situation is more complex than it appears.
“You pay CZK 23,000 if you borrow between CZK 3–4 million. In smaller towns, that will buy you a 1+1 to 2+kk flat, whereas in Prague you may not even find a studio flat for that price. Personally, I would say that people are waiting to see how the situation develops. We do not expect any further fall in interest rates this year, but it is impossible to say what will happen in one or two years’ time. This may also be why there is currently greater interest in rentals.”
Landlords can confirm this too: dozens of interested parties usually respond to a single listing. “This is excellent news for landlords. If they have a mortgage on the flat, the rent usually covers the entire monthly repayment, with something left over. This is all the more true if the property is managed by a real estate company,” points out David Novotný.
At a time like this, landlords are increasingly turning to companies specialising in property management. Aside from the administrative burden and dealing with prospective tenants, professional management also promises greater stability. “With professional management, it is far more likely that a property will not remain vacant. And if it does, another tenant is usually found within 2 weeks. Over the long term, a professionally managed property is therefore more profitable, as there are no interruptions to rental income. The service can more than pay for itself,” concludes Novotný on behalf of Bohemian Estates.