Are the mortgages in the Czech Republic about to get cheaper?

The sharp rise in interest rates that we have been experiencing for more than a year has stopped for now. On the interbank money market, interest rates are falling, which means the "price of money" is decreasing. At the same time, the Czech National Bank (CNB) at its August meeting in its new composition did not proceed to increase the basic interest rates. Thus, the possibility for lower mortgage interest rates on the part of providers is beginning to appear.

The last major increase in mortgage interest rates came after the CNB meeting in June, when the Bank Board, still in its old composition, proceeded to increase the basic, so-called two-week repo rate to 7 percent. After the August meeting of the Banking Council, the base rate remained at the same level.

However, other factors also have an influence on mortgage interest rates, including, for example, rates on the interbank money market. These rates have been changing dynamically lately, but they have been falling since around mid-June, and therefore the cost of funds from which banks provide mortgages is also decreasing. If this trend were more permanent, the opportunity for banks to make mortgages cheaper could appear. Market interest rates, unlike from those announced by the CNB, are falling due to fears of a possible recession.

The five-year interbank rate hovered around 6.4% in June, while from mid-June it started to fall to the current 4.96% (as of 4 August 2022), i.e. it fell by 1.44%, see the graph below showing the development over the last 3 months.

Source of the graph: Patria.cz, www.patria.cz

Currently, interest rates on offered mortgages are at the level of 6.28 percent (source: Fincentrum Hypoindexu). At the same time, the DTI (debt to income) and DSTI (debt service to income) income limits set by the Czech National Bank are still assessed when applying for a loan. These limits reduce the credit capacity of most applicants, so the applicant are usually forced to take out a lower loan amount. Under the current conditions, mortgages are thus unaffordable for many people, and even a slight discount could significantly help many applicants. Currently we have rates around 5 percent to our clients.