Mortgage market slowing down

New lending rules have started to reduce the number of housing loans

Interest in new mortgages is still strong, but the tightening of rules for new clients may have begun to show an effect. In September banks signed fewer loans than the same time a year ago and more significantly fewer than in August. September has traditionally been stronger than August, according to daily Hospodářské noviny (HN), which cited statistics from Fincentrum Hypoindex.

But the first three quarters of 2017, on the whole, have been stronger than the same period for 2016.

The average interest rate rose slightly to 2.04 percent from 2.01 percent in August. It had been at 1.77 percent at the end of last year.

In September, banks lent a total of Kč 17.093 billion on new mortgages, compared to Kč 18.036 billion in August. The number of new mortgages fell by 274 contracts from 8,509 in August to 8,235 in September.

However, the year-on-year drop is much larger. The volume of new mortgages for September was Kč 2.5 billion less than last year. Some Kč 19.607 billion was lent in September 2016 and Kč 17.093 billion in September 2017.

The number of new contracts fell by almost 1,590 from 9,825 in September 2016 to 8,235 in September 2017. The mortgage market slowdown has been evident since July.

Last year, the Czech National Bank (ČNB) forced the banks to stop offering a 100 percent mortgage. Since April this year, most people have to have at least one-fifth of their own money for the mortgage. In June, the ČNB required banks to more rigorously assess the income of anyone who wants to borrow for a flat.

Despite the recent drops, the mortgage market this year overall has been better than last year, which was a record. Banks lent Kč 168.26 billion in first three quarters of 2017, up 5.4 percent from last year. This was due to the first half when the volume of mortgages rose by 16.2 percent.

Analysts cited by daily Hospodářské noviny (HN) said it is possible that this year's annual result still set a record. “It probably won't be in the number of new mortgages, but in the total amount of money provided. Real estate is outrageous and people need ever higher loans,” Josef Rajdl, chief analyst at Fincentrum, told HN.

The results for the mortgage market are better than analysts had predicted. At the beginning of this year, bankers and analysts estimated that the tightening of mortgages would make the market fall this year by as much as 20 percent.

Previously developers have cited several factors for rising prices for flats in urban areas including the large amount of red tape that must be dealt with before new projects can be built, which is slowing the ability of developers to meet demand. The number of flats being bought for use in shared accommodation services for tourists is also driving up the prices of flats, especially in Prague.

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