Housing loan market has seen a recovery

The interest rate fell to 5,9% and the volume of mortgages recovered in February

According to data from the Czech Banking Association (CBA), which collects data from all domestic banks and building societies providing mortgages, the volume of housing loans recovered slightly in February. In fact, banks and building societies disbursed more than 2.300 new mortgages for housing purposes, as well as CZK 7,9 billion. Compared to January, where there had been a 16% drop, there was a 20% increase, the highest since August 2022. However, compared to February 2022, the drop was almost 70%, still among the lowest values in the last 10 years. The average rate is falling slightly to 5,9%. “Recently, market interest rates have been very volatile in relation to uncertainties in the global and domestic economy and change direction quite often. This year, on average, they are only slightly lower than in the last months of last year, which also corresponds to a slight decrease in mortgage rates,’ said Jakub Seidler, chief economist of the Czech Banking Association. Mortgage rates react with a slight delay to the development of market interest rates with longer maturities, as they also reflect the inflation outlook, the expected development of CNB rates, economic development and the dynamics of similar interest rates abroad.

Česká spořitelna’s mortgage expert Marian Holub said that “favourable interest rate developments could encourage further volume growth. According to our expectations, they should stagnate or even decrease slightly this year”. ČSOB CEO Martin Vašek says that the main reason Czechs apply for housing loans (one third of applicants) is to renovate their homes in order to reduce energy needs, in addition to ordinary repair work.

The following table summarizes the volume of loans granted and the average interest rates for February 2023:

	Volume (bn CZK)	Volume (number)	Interest rate %
TOT	7,9	2.900	5,89
New loans	6,5	2.289	5,90
Of which:
For purchase	5,1	1.692	5,88
For construction	1,0	426	5,83
Other	0,4	171	6,25
Refinanced by another institution	0,9	433	5,89
Internally refinanced	0,2	94	5,90

The table below shows the various scenarios for the development of monthly repayment for different mortgage durations, from which it can be seen that an increase in mortgage rates leads to an increase in monthly repayment of about CZK 1,5 thousand for an average mortgage size.

Average size of a new loan in CZK:	2.856.578
Average interest rate in %		2	3	4	5	5,9	7
		monthly instalment:
Mortgage maturity in years	15	18.382	19.727	21.130	22.590	23.944	25.676
	20	14.451	15.843	17.310	18.852	20.293	22.147
	25	12.108	13.546	15.078	16.699	18.223	20.190
	30	10.558	12.043	13.638	15.335	16.935	19.005