Rent increases will cause temporary changes in the market: how can you prepare for them as a landlord?

Last year was entirely marked by increases in the base interest rate. The Czech National Bank took this step five times in total, until the rate reached 3.75% in December. Banks responded soon afterwards, and mortgage applicants now pay considerably more. The changes will also affect people whose fixed-rate period is ending in the near future, as they too can expect changes to their terms. However, raising the interest rate was not the only step taken by the Czech National Bank. Also significant for those planning to buy a property is the reintroduction of two previous indicators, DTI and DSTI. What do these indicators show? David Novotný, owner and managing director of Bohemian Estates, a real estate company specialising in property investment and property management, explained them.

“The DTI indicator, or debt-to-income, expresses a mortgage applicant’s total debt as a multiple of their net annual income. For people over 36, the Czech National Bank has set this value at 8.5, meaning that an applicant should be able to cover all their debts with no more than eight and a half times their net annual income. DSTI means debt-service-to-income and expresses the ratio between the total amount of an applicant’s monthly debt repayments and their net monthly income. DSTI is capped at 45%, meaning that the applicant’s debt repayments should not exceed 45% of their net monthly income,” says Novotný.

These conditions will come into effect from April this year and, although banks will have some room for discretion, it is expected that people’s attention will turn to rental housing. Significantly fewer people will qualify for a mortgage next year. Rental housing is therefore very likely to become more expensive, especially in large cities or outlying areas of large cities. “We expect rents to rise in Prague, as well as in towns with good transport links to Prague along the main routes. Landlords will be able to do so there,” adds David Novotný. However, this need not necessarily be good news for all property owners. Rising prices may result in short-term moves. People will seek cheaper alternatives or more advantageous locations. Put simply, many people will reconsider their housing this year. “In the Czech Republic, property owners who view rent as passive income and do not want to deal with anything still predominate, and of course the worst possible scenario is having to find new tenants. But not increasing rents is not the solution either – it would be against their own interests,” says Novotný.

In his view, it is advisable to respond to the situation now and discuss everything with current tenants in advance, agreeing terms that suit both parties. Those who have entrusted rental management to a real estate agency are then in a stronger position. Some even guarantee rent when a property is vacant. Bohemian Estates is one such example, having successfully offered its guaranteed rent service for years. “A rent guarantee is naturally the ideal solution in precisely these cases, when the market is experiencing greater or lesser turbulence. In the long term, rising rents are excellent news for owners, but they may also bring a certain degree of inconvenience, particularly in the first half of this year,” concludes David Novotný of Bohemian Estates.