We are witnessing a sharp change of direction in the mortgage market
We are witnessing a sharp change of direction in the mortgage market – interest rates are approaching the four per cent mark, and the number and volume of mortgages granted are falling as a result. Although mortgage interest rates are rising, Czechs still have a strong appetite for acquiring property. However, a declining trend in demand for home loans is gradually becoming apparent. One reason is concern about rising inflation, which is significantly eroding their savings.
In September, according to the Fincentrum Hypoindex indicator, banks provided mortgages worth more than CZK 30 billion – the mortgage market thus comfortably surpassed CZK 300 billion in arranged mortgages.
“We are in a situation where interest rates announced by individual banks are now routinely exceeding three per cent. Mortgage price rises are not over yet – I would expect banks to increase them by several more tenths of a percentage point by the end of the year. As interest rates rise, the number and volume of loans granted fall at the same pace,” explains David Novotný, owner and managing director of the real estate company Bohemian Estates International. Mortgages in the Czech Republic are rising in price at their fastest rate since the end of 2018. However, this appears to be only a warm-up. Mortgages will continue to become more expensive, and at an even faster pace, in the coming months – anyone who needs to arrange a home loan in the near future should not delay unnecessarily and should take one out immediately.
The impact of more expensive mortgages on the property market
We can expect demand to gradually decline as mortgage loans become more expensive. Even so, it is clear that in 2021 mortgage lending will reach record volumes – estimated at up to CZK 400 billion. People will increasingly prefer rental housing, so we can expect rents to rise. “If inflation remains above the three-percent threshold in the long term, there will still be plenty of people looking to protect their savings by investing in property. The future and further development of the property market therefore depend largely on developments in global markets, particularly on the speed at which relationships between customers and suppliers are restored, as these directly affect price increases. It is evident that the era of low inflation and very cheap money, which lasted from 2015, has definitively ended,” explains David Novotný.
Concerns about inflation
Returns from standard banking products such as savings accounts will not cover inflation, which, by contrast, benefits those with debts – in real terms, it reduces their mortgage repayments. For those with savings, however, it erodes the value of their money. This is why demand for property continues to grow despite rising prices, further driving up property prices. Owner-occupied housing will therefore become affordable for far fewer people than it is today.