In anticipation of the anticipated rate cut by the Czech National Bank (CNB), leading banking institutions in the Czech Republic have initiated the process of reducing interest rates on loans. Notably, mortgage interest rates are on the verge of dipping below the five percent threshold, a level last observed in May of the previous year, as reported by the Hypomonitor of the Czech Banking Association.

As of September this year, the average interest rate for new mortgages, excluding refinancing, has dropped from 5.78 percent in August to 5.74 percent. This decline in mortgage rates has coincided with a resurgence in the real estate market, with an increasing number of buyers showing interest in property purchases. According to Libor Vojta Ostatek, a mortgage expert at Broker Trust, “Interest in mortgages is slowly reviving. A positive impulse was the deactivation of the DSTI limit in July, combined with the proactive measures taken by banks. As a result, the best mortgage offers are now inching closer to the coveted five percent mark.”

The DSTI (Debt Service-to-Income) indicator limit, abolished by the Czech National Bank in July, had previously determined the maximum percentage of the total monthly loan repayments that could be charged based on an applicant’s net monthly income. The removal of this limit has made mortgages more accessible to a broader segment of the population.

Czech banks are closely monitoring developments at the CNB and are anticipating potential changes in the central bank’s rates. “Based on recent statements from members of the Banking Council, we assume that the CNB may begin cautiously lowering its basic interest rate by the end of this year,” notes Patrick Madle, spokesperson for ČSOB, one of the prominent banking institutions in the country.

Should the CNB indeed lower its interest rates, banks are likely to pass on the interest rate adjustments to consumers, affecting both consumer loans and mortgages. However, the exact timing and pace of this transition remain uncertain. Martin Novak, Chief Analyst at Broker Consulting, suggests that the decrease in interest rates will likely be more gradual compared to the rapid rate hikes witnessed in the previous year. This cautious approach aligns with the central bank’s strategy to ensure a stable and sustainable economic recovery.

Article by Prague Forum