The Czech Republic’s high-interest rates and stringent income limits for mortgage applicants have deterred many potential borrowers from pursuing home loans. However, there may be some relief on the horizon as the Czech National Bank (CNB) considers softening these limits. The decision is expected to be made during the CNB’s upcoming meeting in early June.

In April, banks and building societies granted mortgage loans totaling CZK 10.6 billion, representing a 16% decrease compared to March. Year-on-year, the volume of granted mortgages saw a significant decline of 40%, reflecting the challenges faced by potential borrowers in the current market.

CNB Vice-Governor Jan Frait acknowledged the relevance of discussions regarding potential adjustments to credit indicators in light of the increased interest rates. The decision on whether to soften the limits will be made during the financial stability discussions scheduled for June 1.

Two years ago, the CNB tightened mortgage limits, which came into effect in April of the following year. The loan-to-value ratio (LTV), which measures the ratio of the mortgage loan amount to the appraised property value, was reduced from 90% to 80%. However, the 90% limit still applies to applicants under the age of 36. Additionally, the CNB reintroduced income limits, including the debt-to-income (DTI) and debt-service-to-income (DSTI) ratios, for mortgage applicants.

Experts in the industry believe that relaxing the DTI/DSTI limits could increase the availability of mortgage loans, particularly in larger cities, and enable more applicants to secure financing. Jan Brejl, Director of Business at Partners Financial Group, suggests that even more significant market growth could be achieved by easing the limits on mortgages with loan-to-value ratios above 80%.

David Mencl, Director of Ekonomické stabby, notes that potential borrowers are currently waiting for more favorable conditions before entering the market. Hendrik Meyer, CEO of Bezrealitky, expresses optimism that easing the DSTI parameter could attract thousands of new mortgage applicants and potentially lead to an increase in property prices.

The potential softening of mortgage limits by the CNB reflects a proactive approach to stimulate the housing market and provide greater accessibility to home loans. By adjusting credit indicators, the CNB aims to address the challenges faced by potential borrowers and promote a more robust and dynamic mortgage market in the Czech Republic.

Article by Prague Forum