Mortgages set record last year

Fewer were issued, but the average amounts were higher

People borrowed a record Kč 285 billion in mortgages last year. Banks negotiated fewer mortgages than in 2016, but loan values were higher. This is due to households doing well and becoming willing to get more indebted. The price of real estate was also a factor. But the ČNB is continuing to tighten conditions to avoid a real estate bubble.

Building societies contributed to the growth and lent nearly Kč 60 billion, up 18 percent year-on-year, according to the brokerage firm Golem Finance.

Measures introduced by the Czech National Bank (ČNB) last year tightened conditions for mortgages and eliminated the possibility for 100 percent loans to buy property.

Fincentrum Hypoindex said 110,000 mortgage loans were issued in 2017, roughly 5,000 fewer than a year earlier. The average fixed interest rate rose to 2.02 percent for the whole of last year. In December the average amount of the mortgage loan rose to Kč 2.15 million.

Interest in mortgages remains high, despite rising interest rates.

Josef Rajdl, chief analyst at Fincentrum told daily Pražský deník that a lack of real estate on the market was another factor that affected mortgages as much as the ČNB’s regulations.

The ČNB is likely to continue tightening mortgage conditions to avoid a housing bubble. The continuing rise in residential property prices by increasing much faster than the real purchasing power of the population. If the economic situation deteriorates, people may have problems repaying loans.

The proportion of apartments purchased by mortgage buyers has not changed fundamentally in Prague in recent years. The percentage has risen in older panel estate and brick flats as well as in second-hand developer projects. The lowest amount of mortgages are taken for flats in new buildings by developers.

Miroslav Linhart of Deloitte Consulting told Pražský deník that new apartments are more often bought by wealthier people and a significant part of them are foreigners who prefer to pay in cash. Wealthy people prefer new flats as investments, as older flats often need extensive renovations and have other costly delays.

Developers blame the lack of supply on the real estate market to the convoluted process for getting building permits, which is one of the most drawn out in Europe.

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