Mortgage rates in Czechia now among the highest in the past 20 years

Due to the high rates and other factors, the volume of mortgages granted is significantly lower than last year. Staff

Written by Staff Published on 14.11.2022 12:00:00 (updated on 14.11.2022) Reading time: 3 minutes

The average interest rate for a mortgage in Czechia is at one of the highest levels in 20 years. The interest rate for newly granted mortgages rose slightly to 5.86 percent in October, up from September's 5.83 percent, according to the Czech Banking Association (ČBA). Interest rates were also at similar levels in 2008 and 2009.

Banks and building societies last month provided mortgages worth CZK 7.2 billion. This was a slight increase month on month, but compared to the year-earlier level it represented a drop of 82 percent, similar to September.

From a month-on-month point of view, the volume of mortgages granted was mostly stagnant after it recorded a double-digit drop in the three previous months. The decrease in the volume of mortgages provided is noticeable not only compared to 2021, which was particularly strong, but also compared to 2020.

The volume of mortgages provided in October is more than three quarters lower, statistics show. For this year from January to October, activity in the mortgage market fell by 60 percent.

“The mortgage market continues to stagnate, and a change in direction cannot be expected for the next period,” UniCredit Bank mortgage manager Filip Beneš said in a ČBA press release.

He added that the cooling of the real estate market is caused by the rise in interest rates and restrictive measures by the Czech National Bank (ČNB), among other factors.

Despite the current drop in demand, prices for new empty apartments have not yet fallen significantly. According to data from cited by ČBA, in the third quarter of this year, the average price of new vacant apartments offered by developers in Prague increased by 1.4 percent compared to the previous quarter, while prices outside Prague fell by 2 percent. From a year-on-year perspective, prices are over ten times higher.

New mortgage volume remains weak

The volume of newly granted mortgages, without refinancing, in October rose to CZK 6.07 billion from September's CZK 5.99 billion. The volume of refinanced loans amounted to CZK 1.15 billion.

The number of newly granted mortgages reached 2,100 in October, only 50 more than in September. The average monthly number in the first half of this year was 6,000 and last year it reached 9,500.

ČBA chief economist Jakub Seidler said that October’s volume of newly granted mortgages generally stagnated compared to the previous month, and is still at the weakest level since the beginning of 2014. He also was not optimistic that the market would change any time soon.

“The causes of the current situation, from the level of interest rates to regulatory rules or the development of real estate prices, do not yet indicate that the situation should begin to improve in the foreseeable future,” Seidler said.

People borrowing less money

In October, the average mortgage amount fell slightly below CZK 2.9 million, where it was last at the end of 2020. With stricter ČNB rules and high interest rates increasing monthly payments, some households had to reduce the intended amount of the mortgage. Mortgages reached their highest average mortgage amount in November 2021, at CZK 3.46 million, and have been gradually decreasing since.

An increase in mortgage rates by 1 percentage point means an increase in the monthly payment by CZK 1,500 for an average-size mortgage. Compared to the 2 percent interest rate that was common on the market in earlier years, a 6 percent mortgage rate means an increase in the monthly payment for an average mortgage by CZK 6,000 to CZK 7,000, according to ČBA’s calculations.

Dip follows after two strong years

For the whole of last year, almost 178,000 mortgages were granted. The total volume, including refinancing, reached a record volume of CZK 541 billion in 2021, while in 2020 the volume amounted to CZK 312 billion.

A similarly strong year-on-year growth was also evident in the case of newly granted mortgages, which banks also granted last year in a historically record volume of CZK 379 billion. Compared to 2020, this was a year-on-year increase of 70 percent.  

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