In a recent shift, Czech banks have slightly reduced interest rates for short-term mortgages while concurrently increasing rates for long-term ones, leading to a marginal uptick in the average offer rate, as reported by the December Swiss Life Hypoindex. The current average offer rate stands at 6.02 percent, reflecting a subtle increase from the previous month’s 5.71 percent, as indicated by the November mortgage monitor directly from the banks.

From a holistic perspective, the mortgage market has maintained overall stability throughout the year 2023. Analyst Jiří Sýkora from Swiss Life Select notes that the market’s trajectory at the end of the year closely mirrors how it began.

Breaking down the numbers, the monthly payment for an average mortgage of 3.5 million crowns, with an 80 percent loan-to-value ratio, a 25-year term, and an average offer rate of 6.02 percent, amounts to 22,589 crowns, as per the December Hypoindex. Despite the marginal rate increase, the annual comparison reveals a relatively modest decrease of 685 crowns.

Notably, mortgages with a ten-year fixation, especially for young borrowers, have become more expensive. Interest rates for five-year fixations fluctuate between 5.8 to 6.14 percent, while ten-year fixations are offered at 6.39 percent for applicants up to 36 years and 6.05 percent for others.

The recent price hike in ten-year fixations is attributed to the approval of an amendment to the Consumer Credit Act. Effective January of the following year, early repayment fees for mortgages will increase, allowing banks to charge up to one percent of the unpaid principal annually or a quarter of a percentage point, whichever is lower. Banks argue that this fee is inadequate to cover associated risks, raising expectations of a decline in ten-year fixations in the coming years.

While some experts predict a decrease in mortgage rates in the upcoming year, the days of two percent mortgages are considered a thing of the past, and the rates are not expected to return to the levels of previous years.

Article by Prague Forum