In early September, the average mortgage rate in the Czech Republic dropped to 6.1%, down from 6.19% in August, continuing a trend of decline that has persisted for four consecutive months. These statistics are derived from Swiss Life Hypoindex, which compiles data based on information available on the fifth working day of each month. The Hypoindex methodology reflects the prevailing average mortgage offer rate for properties valued at 80% of their total worth.

Analysts attribute this decline in mortgage rates to traditional autumn discounts introduced by several banks after the conclusion of the holiday season. These discounts, while limited-time promotional offers, have contributed to a decrease in the average offer rate. However, it’s essential to note that the base rate for mortgage loans in banks has remained unchanged, with the average offer rate still above six percent. Nonetheless, select banks offer mortgages with rates nearly one percentage point lower.

For example, for a mortgage loan of CZK 3.5 million, covering up to 80% of the property’s estimated value, with a 25-year term and an average offer rate of 6.1%, the monthly installment decreased by approximately CZK 180 to CZK 22,770.

Three-year fixed-rate mortgages experienced the most significant reduction, dropping by 15 basis points. Mortgages covering up to 80% of the property’s value (LTV) now have an average rate of 6.04%, while mortgages tailored to young borrowers under 36 years of age (LTV above 80%) decreased to 6.33%.

One-year fixed-rate mortgages with LTVs up to 80% saw an average drop of three basis points to 6.57%, while one-year fixes for young borrowers remained stable. Rates for all other types of mortgage fixes declined by seven basis points.

Notably, mortgages with a ten-year fixed-rate plan and LTVs up to 80% fell by seven points to 5.95%, marking the first time they had dipped below the six percent threshold since October of the previous year. Only five-year fixed-rate mortgages with an LTV up to 80% had remained below six percent since July, dropping another seven points to 5.84%. Mortgages tailored to young borrowers with five- and ten-year fixed rates also saw a reduction of seven points, settling at 6.13% and 6.23%, respectively.

Analysts, however, caution that these reductions are mostly short-term acquisition deals and do not necessarily indicate a long-term trend towards consistently lower rates. They believe that only a substantial reduction in base interest rates by the Czech National Bank could potentially bring about such a change, though the Bank’s Board currently has no plans to take such a step.

While the decrease in interest rates is viewed as a positive development for the mortgage market’s future, there is concern that this trend could offset declining property prices, leading to increased costs for prospective homebuyers. Rising property prices, combined with lower interest rates, may result in households paying more for an average property than they did in previous months. To offset this impact, rates would need to fall further, perhaps to around 5.8%.

Article by Prague Forum