The Czech National Bank has raised interest rates again. Will this stop mortgage tourism?
Taking out a residential mortgage over the past two years may not have been the wisest decision for many people, yet it happened many times more often than in previous years. Low interest rates played their part, as did the ever-present coronavirus pandemic, which shook the foundations of the Czech economy within a matter of months.
People often lost the most important thing they had: their security. Investing in property therefore became one of the reliable ways to provide financially for themselves and their families in the future. High demand, together with other factors, led to a dramatic rise in property prices, and we know the rest of the story. Yet, it seems, the story is not over. Or is it?
In the first week of November, the Bank Board of the Czech National Bank raised the base interest rate by 1.25 percentage points to 2.75 %. This is the most significant rate rise since 1997, and the Czech National Bank is making it clear above all that it takes rising inflation seriously. Although this move has been criticised by, among others, Finance Minister Alena Schillerová and many experts, who see the main issue rather in insufficient construction, Czech society now has little choice.
Mortgages will become more expensive, and we need to prepare for it. “Exceptionally cheap mortgages are over, and we can assume that the era of mortgage tourism has come to an end. Banks also played a part in this, competing with one another in their offers to clients. Let us remember that it was not unusual to obtain an interest rate below 2 %,” comments David Novotný, founder and owner of the real estate company Bohemian Estates.
Among other things, the company specialises in property searches and due diligence for prospective buyers, giving it a close-up view of this exceptional real estate spectacle of recent years. So, what exactly does the Czech National Bank’s latest move mean, according to property experts? “We will not avoid rising prices this year, but there is hope that price growth will slow down at least somewhat next year. As far as property is concerned, however, investments must now be approached with a cool head. There is simply neither time nor room for spontaneous purchases at present,” advises Novotný.
This does not mean, however, that we should put investments on hold for a while. “Property remains one of the safest ways to grow capital and will protect our savings from inflation. However, it is necessary to know what we are buying and whether it is truly a suitable investment. Any misstep can now hurt a buyer more than ever before,” warns David Novotný.
Bohemian Estates automatically monitors properties for its clients according to their specified criteria, including off-market listings. Prospective buyers are immediately alerted to suitable properties, while real estate representation can also help negotiate substantial discounts. “We have professionalism and, above all, know-how on our side. We can negotiate discounts, also thanks to technical or legal assessments that often uncover hidden defects in properties. With us, clients save not only time but also money, and can be sure they are not buying a pig in a poke,” concludes David Novotný of Bohemian Estates.