New conditions for mortgages provisions and the increase in interest rates

The czech mortgage market has woken up to a new reality. New restrictions from Czech National Bank, concerning household income and maximum credit exposure, are valid from today. 

New DTI and DSTI parameters

As we informed in our article from June, the Czech National Bank has implemented restrictions for loan applicants, which are:

• The total debt of a loan applicant cannot exceed is nine times of his/her annual income (DTI parameter)
• Monthly payments of all debts that the applicant cannot exceed is 45% of their annual income (DSTI parameter)

In our blog we have written extensively about these parameters. It´s definitely not reasonable to spend more than 45% of household expenditure on mortgage (and other) loans. The problem here is, that this coefficient is determined from the income, as is defined by the bank. For example when the applicant earns 50 thousand czech crowns per month, the bank may only accept 20 thousand crowns. That makes it nearly impossible for new applicants to get a reasonable mortgage, Although the need of these restrictions makes sense, there are always two sides to consider in any solution.

Banks are rapidly increasing interest rates

Currently and in the recent past, interest rates are increasing and it´s not just by 0.10% or 0.20%. Some Banks are increasing rates by 0.40% or even by 0.50%. Some of the smaller ones are holding their original interest rates but it´s just the matter of time when they´ll decide to increase the price of mortgages.

The increase in interest rates in Czech National Bank

By the last 14 months, the Czech National Bank has increased interest rates six times. The overview of the gradual increasing is available here:

• 04.08.2017 +0.20%
• 03.11.2017 +0.25%
• 02.02.2018 +0.25%
• 28.06.2018 +0.25%
• 03.08.2018 +0.25%
• 27.09.2018 +0.25%

During this period the Czech National bank has increased rates by 1.45%. The time between increase has been shorter. We can now predict that by the end of 2018 we can expect another increase in interest rates, which will be projected on the prices of mortgage loans.