Current situation in the mortgage market and its’ presumed development for this year

We are getting a lot of questions about the current situation in the mortgage market and its’ presumed development for this year. This article will highlight some basic information and provide you with an overview of the current situation.

The end of the last year was a very hectic. Why was this?

Last year the Czech National Bank increased interest rates so quickly that the only thing that the mortgage lenders could do to react was to keep pace and increase interest rates multiple times. Additionally, new restrictions on revenue and expenditure of applicants in the form of parameters DSTI (45%) and DTI (9x) started to apply. For more information about these newly introduced parametres click here. For this reason and because of the huge media coverage, panic materialized in the market that nobody will ever be able to get a mortgage. Moreover, with the huge increase of prices at the end of 2018, combined with above effect the demand for mortgage loans was in the second half of 2018 was enormous.

How will this situation evolve?

January brought considerable calm to the market as it is also is traditionally the time of year when the demand for morgage loans is always at it´s lowest. Thanks to that the real estate market cooled down. What development can be expected? Will real estate become cheaper? Will the increase in interest rates continue or will it reverse as time goes on?

The average interest rate of mortgage loans has increased from 2.19% to 2.91%

We noticed the increase of the average interest rate by 0.72% in 2018, the year ended at an average rate of 2.91% (source: FINCENTRUM HYPOINDEX, Hypoindex.cz). In 2019 we can expect an increase in interest rates from the Czech National Bank again, which will negatively impact the interest rates for mortgage loans. It is forecast that at the end of this year average interest rates will be above 3.50%. Based to the current economic situation there is no reason rates will decrease and it is not expected any time soon.

How will the real estate market react to this? Is it better to wait for a decrease?

Unlike the estimate of interest rate movements, opinions on the course of development of the real estate market are quite different. It is important not to view the situation in the real estate market as one homogeneous market in the whole Czech Republic. The situation will develop differently depending on location with large differences between the capital city, regional towns and other outlying regions.

The prices of real estates in Prague had increased a lot at the end of the last year. The main reason for this increase was foremost, the huge demand that we mentioned in the beginning of this article.

Prague real estate market will develop itself differently from other regions. However, we expect that the demand in the capital city will be strong enough to only moderate and slow the growth of the real estate prices. Based on information available as of writing this article we do not anticipate a decrease in property prices in Prague. In contrast in some region we see a stagnation in prices, which could lead to a decrease in prices, The development in other regions is quite specific and it always depends on the local situation but if there is a chance for a slight decrease of real estate prices, it´ll be in the smaller towns.

News and changes

Another news event is the merger of ČSOB and Poštovní spořitelna. The final „re-branding“ of all the post offices will be probably occur in 2020 but after a long time on the market we will no longer see be the „red bank“ anymore and instead of this there will be classic “blue“ contact points of ČSOB bank.

Another planned change from the last fall is the merger of Moneta Money Bank with Air Bank and HomeCredit. Because of the size of the transaction there is the possibility that this may not get completed in 2019. This merger if completed, will create the third biggest bank in the market.

Summary

Interest rates under 2% are past. You might not like it but it is a fact. It can take quite a few years to get approach the 2% margin again. Those of you, who remember interest rates over 5%, still see the interest rates at 3% as very attractive from a long-term perspective.

The future developement of the real estate prices after the last year’s increase are still hard to gauge. Czech regions can indicate a sign of stagnation or a little decrease but Prague still has a significant demand so here we can expect a little growth (in a comparison from the last two years).

Our morgage specialists are ready to assist you not only with choosing the right mortgage for your housing needs, but also with questions about acquisition and financing of real estate. Take advantage of their extensive experience.  Our specialists have on average over 8 years of experience dealing with a few hundred transactions. You can contact them by filling this simple form.