Mortgages are becoming a luxury product; around one tenth of applicants will not qualify next year
The Czech National Bank has used the powers granted to it since August this year to tighten the indicators that banks must comply with when providing mortgage loans. The new conditions are estimated to affect one tenth of mortgage applicants next year, making it more difficult for them to access home loans. What does the change mean and what will it actually involve for applicants?
One tenth of applicants will not qualify for a mortgage in the coming years
Last week, the central bank decided to change three indicators that could ultimately regulate the entire mortgage market: LTV, DTI and DSTI. The first of these is the percentage ratio between the loan amount and the value of the property used as collateral – in other words, it determines what proportion of the property the bank will finance and what you must fund yourself. The other two compare an applicant’s debts and repayments with their income. The DTI limit will be 8.5, or 9.5 for applicants under 36. The DSTI limit will be 45%, or 50% for applicants under 36.
“The Czech National Bank has stated that, by changing these key indicators, it is responding to banks loosening their lending standards and to the growing overvaluation of flats and houses on the Czech property market. According to its data, this was reportedly 25% in the Czech Republic in the second quarter of 2021, and five percentage points higher for investment flats. The new rules have made the situation more difficult for around a tenth of mortgage applicants, who may not be able to meet the new criteria,” says David Novotný, owner and managing director of Bohemian Estates real estate company.
According to ČNB Governor Jiří Rusnok, the purpose of the new rules is to prevent vulnerabilities in the banking sector. Banks can generally be considered prudent, but in some cases there has been a relaxation in the assessment of potential borrowers – as shown by data on the share of risky loans, which has increased over the past year. “This may be the result of competition: when one bank relaxes its standards, others follow suit in the fight for customers,” Novotný explains.
Those who do not own their home at least aspire to
The central bank’s latest move is not good news for the particular Czech market, where the desire for owner-occupied housing is deeply rooted. It is said that Czechs either own their home or aspire to do so, with nothing in between. Interest in rental housing is gradually growing, partly as a result of the coronavirus pandemic, but most Czechs still regard it as an unpopular form of housing. The share of rental housing compared with owner-occupied housing is only around 20%. This is a major difference compared with developed Western countries and neighbouring countries, where the figure is roughly twice as high. One reason is the simple fact that, in some Czech cities, rent still exceeds mortgage repayments.