In a noteworthy development, Czech mortgage rates have dipped below the six percent threshold after a year and a half. The Swiss Life Hypoindex reports that the average mortgage rate offering in January experienced a decline of six-hundredths of a percent, settling at 5.96 percent. Interestingly, this reduction occurred despite the Czech National Bank’s decision to lower its base interest rate by a quarter, settling at 6.75 percent in December.

While major banks have been notably reducing savings account rates, the decrease in mortgage rates has been more moderate. Swiss Life Select analyst Jiří Sýkora suggests that this decline in mortgage rates could be a response to banks adapting to new compensation rules for early mortgage repayment. The adjustment in rates may be influenced by banks being allowed to collect a new fee, which is now one percent of the repaid amount, down from the initially proposed two percent.

Sýkora explains that banks initially advocated for a two percent fee, but lawmakers decided on a lower one percent. To mitigate potential losses, banks have established a safety net through a higher interest rate, impacting new clients. He anticipates a gradual continuation of the decline in mortgage interest rates in the upcoming months.

The impact of this reduction is evident in the monthly mortgage payments. For a loan of 3.5 million CZK, covering 80 percent of the property price with a 25-year maturity and an average offer rate of 5.96 percent, the monthly payment decreased by 117 crowns in January to 22,472 CZK. This translates to a reduction of over 800 CZK compared to the same period last year.

Notably, more substantial decreases were recorded for mortgages targeting young borrowers up to 36 years old, allowing banks to offer mortgages exceeding 80 percent of the property’s pledge value (LTV). Mortgages fixed for three and five years have become cheaper by 0.21 percentage points, settling at six percent and 5.93 percent per annum, respectively. The most economical mortgages in the market are those with a five-year fixation and an LTV of up to 80 percent. The evolving mortgage landscape in the Czech Republic suggests a nuanced interplay between regulatory changes and market dynamics, impacting the affordability of home financing for consumers.

Article by Prague Forum