The news from July: Lower interest rates and better conditions for young people

The property prices are still increasing and a lot of people can´t affort the mortgage. The number of mortgages sold overall has decrased which is the reason why banks are trying to entice clients by offering them better terms and conditions.

The increase in property prices combined with the stricter mortgage conditions set by the Czech National Bank (CNB) significantly decreased the number of applicants who would qualify for a mortgage. CNB has increased the interest rate 5 times in the last year. Banks are trying to entice their clients by offering them better conditions, such as lower interest rates or lower mortgage proccessing fees. They are also increasing the interest rates for the savings account.

A proposed  (if passed) - amendment to the Mortgage Act by the CNB should help younger people under 36 years of the age to qualify for a mortgage. These people could apply for a 90% LTV mortgage  or use a more liberal DTI parameter where the total debt of a loan could not exceed 10 times an applicant´s annual income. Moreover, they could be offered better interest rates when applying for a mortgage from the state. 

On the other hand, this proposed ammendment could make it more harder for people over 36 years to get a mortgage. Currently, banks can offer as a standard 80% LTV mortgages and rarely 90% LTV mortgages to their clients.  To qualify for these execeptional circumstances clients banks are making the decisions based on their own internal criteria. The only condition is that the overall 90% LTV mortgages can´t exceed 15% of the total debt of the applicant.

Below are examples of how much money can the applicant living in Prague apply for. According to the Czech Statistical Office the average salary in Prague in the first quater of 2019 is CZK 41 450. The average price of an 3+1 appartment in Prague is approximately CZK 6 000 000. 

In the first example we use the applicant who is older than 36 years old, and thus under the proposed ammendment would not quailify for the looser conditions. 

The current restrictions from the CNB are that the total debt of a loan applicant cannot exceed is nine times of the applicant´s annual income (DTI parameter) and also monthly payments of all debts that the applicant cannot exceed is 45% of their annual income (DSTI parameter).

According to these parameters this applicant living in Prague with the average salary can apply for a mortgage of total value of at most CZK 4 476 600.

41 450 Kč ( The average salary in Prague) * 12 * 9 (9 times of applicant´s annual income) = CZK 4 476 600 

If the Amentment to the act is passed the applicant who is younger than 36 years old can apply for a mortgage of total cost CZK 4 974 000 , because he could use the higher DTI parameter – the total debt of a loan won´t be able to exceed 10 times of the applicants annual income.

41 450 Kč (The average salary in Prague) * 12 * 10 (10 times of applicants annual income) = CZK 4 974 000

According to the latest news CNB hasn´t changed the interest rates. We can expect the interest rates to be the same or lower during the summer. The fight between czech banks over clients will probably continue, even in case of increasing the interest rates by the CNB.