Mortgage rates rising

The recent ČNB rate increase is getting passed on to clients

Banks have responded to the Czech National Bank's (ČNB) recent increase in the basic interest rates.

Česká spořitelna on Nov. 6, raised mortgage rates, with Komerční banka following on Nov. 8. Hypoteční banka will join in Nov. 13.

The ČNB bank board on Nov. 3 increased the two-week repo rate by 25 basis points to 0.50 percent. At the same time, it increased the Lombard rate by 50 basis points to 1 percent and kept the discount rate unchanged at 0.05 percent. It was the second repo rate increase this year.

The era when it was possible to get the rate under 2 percent in the Czech Republic is at an end, analysts say.

Hypoteční banka spokeswoman Andrea Vokálová told daily Hospodářské noviny (HN) the rate on mortgages with a three-year and five-year fixation of up to 80 percent of the value of the mortgaged property will start at an interest rate of 2.49 percent

Komerční banka raised its interest rated to the same level. At Česká spořitelna, the new rate is 2.29 percent. Other banks such as UniCredit, Raiffeisenbank, and Sberbank have also raised rates.

The minimum rate for the most popular, five-year fixation is just under 2.5 percent in major banks. This is the rate at that favored clients reach, other clients usually get higher rates.

Michal Pich, managing director of EuroNet Media, which runs three real estate portals, told HN that in the spring of this year, it was possible to negotiate a mortgage loan around 1.5 percent. It is difficult today to get a mortgage under 2 percent. If the forecasts of some mortgage brokers are correct, next year rates could range from could range from 2.5 to 3 percent, he said.

Banks are reluctant to raise rates too high as they are afraid they might lose market share.

Komerční banka increased its rates 0.2 percentage points. Česká spořitelna and Hypoteční banka raised interest by 0.1 percentage point. These are less than the 0.25 percentage points of the ČNB repo rate hike.

Last fall, Komerční banka raised interest rates a few tenths of a point higher than its largest competitors and reduced its share of new mortgages.

Some bankers according to HN say that in 2012 the basic ČNB rate was also 0.5 percent and mortgage rate was 3 percent. At that time banks did not compete as strongly as they do at present.

Analysts also point out the cost of mortgages will continue to rise as banks will seek to compensate for losses incurred over the last year when rates were low. The increase in the ČNB rate makes it easier for banks to justify passing the costs onto clients.

The ČNB is likely to continue raising rates, and many clients will want to speed up getting a mortgage before rates rise, even more, analysts say.

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