Mortgage rates hit all-time low

Rates are expected to rise though at least in the short term

A new record was set in the Prague mortgage market in November. The average interest rates hit a historic low of 1.77 percent, according to statistics from Fincentrum Hypoindex.

The number of new mortgages was14,386 and amounted to Kč 29.683 billion. The previous high number was in June, with 12,324 new mortgages totalling Kč 23.776 billion.

New lows in interest rates had been hit several times in the year, and the November statistic was not unexpected. Banks were also offering preferential rates ahead of a new Consumer Credit Act taking effect. The law, which took effect in December, will ease the rules for early repayment of new mortgages.

The record is not expected to be broken again in December, as some banks are already raising interest rates. Komerční banka was the first major bank to raise its rates, and Hypoteční banka, Raiffeisenbank and UniCredit Bank, as well as the smaller Sberbank have followed suit or said they will. Rates have gone up between 0.2 percent and 0.7 percent depending on the duration of the fixed rate.

From January, rates are expected to increase by 0.4 percent at Česká spořitelna and the rest of the market that has not raised rates yet is expected to join in.

Offer rates are expected to go above 2 percent, where they were last year. The development of rates in 2017 is difficult to predict, most analysts say but are likely to not go lower than they are now due to the changes in the lending law.

The residential market has picked up a lot recently. It had been flat from 2010 to '14, according to Simon Tweddle of SIM Property Investment & Management. Demand started to move in 2014, which began to push prices up, further encouraging people to buy while prices were still low. “At the same time over that period the mortgage interest rates have fallen,” Tweddle said.

“Now we are at a stage where the interest rates are at a historical low in the Czech Republic. It is almost free money. And at the same time interest rates are very low in savings accounts, a fraction of a percent. If you bought property last year you could get a 5 percent gross yield, now it is maybe 4 percent or a little bit less. It is still much better than a savings account. So from a Czech buyers' point of view, there is huge demand,” he said. This has been forcing prices up, and properties are going for about 10 percent more than they had been a year ago.

He added that for foreigners to get a mortgage, it now is easier than it had been in the past, as foreigners are no longer required to set up a company in order to buy property. This had been a requirement for some nationalities.

“It helps if you have a Czech connection, or if you are an EU citizen or if you are from somewhere like the States, Canada, Norway, Switzerland or South Africa. … And the banks really like to know if you have income,” he said. Ideally it should be from employment, he added. “If you are able to prove income from employment, that is the number one,” he said. “If you have a reasonable salary you are pretty much guaranteed to get a mortgage.” It becomes a little more complicated if someone is self-employed, he added, because then the person needs to prove income through bank statements and tax returns. Without a provable income, the terms are not as favorable, he said, though sometimes banks can improve them a little bit.


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