5 things to know before buying property in the Czech Republic

Once you’ve decided to put down roots in the Czech Republic, buying a home can be a natural step. The good news is that both EU- and non-EU citizens are eligible for mortgages, according to Tomáš Jedlička senior advisor at financial consulting firm Fincentrum.

The not-so-good news? Recent caps on mortgage lending and skyrocketing real-estate prices present challenges to the first-time borrower. Jedlička offers these points to consider before you take the property plunge:

The Czech economy is stable and growing. At the same time, residential real estate prices continue to rise. Housing shortages, especially a lack of flats and homes in Prague, create a high demand which pushes prices upward and according to Jedlička, the situation is not expected to change significantly in the near future. In addition, loan conditions have been tightened by the Czech National Bank to make cheap loans less affordable. This works as a protection against a price bubble on the housing market.

New rules issued by the Czech National Bank (CNB) from October 1, 2018 state that the value of all loans cannot exceed nine times the yearly net income and the monthly installment on the loan cannot exceed 45% of monthly net income. In addition, loan to value (LTV) should not exceed 80%, though banks usually offer 90% LTV for a higher interest rate. Jedlička breaks down an example:

“Let’s suppose the client does not have any other loans and decides to buy a 6 million CZK apartment in Prague. The value of the loan (80% LTV) will be 4.8 million CZK. In such a case the client’s yearly net income must exceed 534,000 CZK (4.8 million/9). A monthly installment with an interest rate of 2.9 % and 30-year payment period will be approximately 20,000 CZK per month.”

Which means you’ll need to make at least 45,000 CZK a month to purchase this kind of property in Prague.

Cities such as Kolín, Neratovice, and Kladno offer proximity (less than 40 minutes to Wenceslas Square) and relatively lower property prices. Beroun, Slaný, and Řičany are also popular commuter communities among expats. For those who are handy, there are also subsidies to be had if you construct a low-energy home or reduce the energy consumption of an existing family house.

Search for “Nová zelená úsporám” to read more about these initiatives which cover up to 50 percent of the costs of furnaces, window replacements, or solar panels.

One caveat, when it comes to mortgage brokers, however: don’t let them talk you into additional services that don’t make financial sense to you (on the other hand, brokers can help you acquire the building insurance that is required by the bank).