Mortgage rate rises have stopped, and demand is falling. There are hardly any buyers for flats
After many months of dynamic growth, the average interest rate on new mortgages offered by domestic banks has levelled off and fallen slightly. At the beginning of September, the average rate was approximately 6.23%. However, in terms of the volume of mortgages granted, banks will barely reach half of what they achieved in the same period last year. There are several reasons for this.
“The reasons why the number of mortgages granted has fallen so sharply compared with last year are clear. The main cause is high interest rates, which had been rising continuously until now. A large proportion of bank clients simply cannot afford to repay a mortgage at these rates. Those who might potentially be interested in a mortgage are waiting for rates to fall so they can obtain one more cheaply. The difference from previous interest rates is striking—on average, people now pay an extra CZK 10,000 each month,” explains David Novotný, owner and managing director of the real estate company Bohemian Estates.
According to the September Fincentrum Hypoindex, interest rates fell by 0.05%. This very slight reduction can be attributed to promotional offers from certain banks. “It is logical: banks are trying to gain as much ground in the market as possible and capture the largest possible market share. Financial institutions operate in a highly competitive environment, so they try to offer the lowest possible interest rates to attract as many customers as possible,” adds Novotný.
In this respect, the market is developing as experts predicted—after sustained growth comes slight stagnation. Demand for mortgages has naturally declined under current conditions. In addition to rising interest rates, rising property prices are also a cause. According to data from the Czech Banking Association and the Czech National Bank, it has fallen by approximately 70% compared with last year’s record year.
According to statistical data, the number of new flats in Prague increased year on year. Demand for new homes in Prague remains high, and although supply increased in the second quarter of this year, it is still below the level that would meet long-term market demand.
“Recently, rising property prices have also reflected inflated prices for commodities, building materials and construction work. Few could have foreseen these developments and adapted to them. Of course, the continuing imbalance between supply and demand remains the reason for persistently high prices. The situation remains unchanged, despite a significant proportion of prospective flat buyers withdrawing from the market because mortgages are expensive and inaccessible. Many people wishing to finance their home with a mortgage are forced to postpone the purchase of a new flat indefinitely at current interest rates. As a result, flat sales this year have fallen by roughly half year on year—the cooling in demand is evident,” comments David Novotný of Bohemian Estates.