The pandemic times affected all the markets, and the mortgage market is no exception. Many changes have appeared in the last weeks. News that was valid a week ago had been canceled yesterday, but today is correct again in a modified version. The top management of all the banks has meetings every week, not every month, like in the past. Changes that used to take months to agree on are now being approved in a few days.
However, not only commercial banks make quick decisions. The Czech National Bank itself publishes crucial decisions and changes every two weeks. These decisions significantly affect the financial policy and situation of all banks. The CNB’s primary goal in these tough times is to keep the commercial banks financially healthy. If we take a short look at Poland, the ‘unhealthy’ banks have left the market since the beginning of the crisis or have entirely stopped providing mortgage loans. That’s why CNB is trying to protect our financial market from such a problematic situation.
Take a brief look at the most critical changes that have happened in the mortgage market over the recent weeks:
The Czech National Bank decisions
In the beginning, everyone should be aware that all the news broadcasted to the world by the CNB are mere recommendations, not regulations. Commercial banks may or may not follow them. The decision depends on each bank’s financial policy. However, the public generally perceives this as a regulation. This must also be reflected in the interest rates and conditions towards potential clients. Therefore, many of you are mad/confused about the current situation and are contacting us to get an explanation.
- Change of DTI (debt to income) and DSTI (debt service to income) indicators:
- DSTI – nowadays, the mortgage payment can take max 50% from your net income (previously 45%)
- Banks no longer have to follow the DTI indicator (before, the loan of max. 9 times the net year wage)
- Cancellation of the 90% limit on mortgage loans – banks are no longer limited to a maximum of 15% of cases in the total volume of mortgage loans
- Reduction of the repo rate and the Lombard rate – What are these? The rates you hear about on TV, radio and read on the internet. The basic rates banks need to pay when borrowing the funds from CNB. We have been at 1.75% at the beginning of the crisis. And today? 0,25%. As stated above, the main goal is to support commercial banks and maintain their financial stability, which is negatively affected by postponed installments of billions of crowns.
However, the reality is entirely different:
- DSTI – some banks reacted by increasing to 50%, another part of banks responded in precisely the opposite way, by decreasing to 40% (installment from net income)
- DTI – part of the market reacted by tightening to a maximum loan of 8 times of your yearly net income
- Mortgage loans for 90% of the property price are currently provided in the minimum of banks. They require your input of 20% to prove your financial stability
- No option to apply for the mortgage loan for people from affected industries (tourism, gastronomy, etc.). Despite this, we were able to complete the deal for one of our clients from this sector
- Non-acceptance of income proof from abroad for foreigners living in the Czech Republic (still possible for Czechs).
What else is currently being discussed?
Dividing the costs of early repayment of mortgage loans – the client may have to contribute significantly to the interest rate that the bank loses due to early repayment. Why? Because banks used to motivate clients for the same conditions no matter what the fixation period was (5-10 years). However, the current frequent interventions by the CNB added some wrinkles on the face of high management members. Let’s all hope this is not going to happen, so there are no other costs for clients to calculate with.
What can you learn from this article?
The ideal moment for buying your dream property ‘does not exist’. Behind each open door is another that closes slowly. Every single coin has two sides. We are now receiving many questions about the development of rates in the upcoming weeks/months. Should I apply now or wait? We want to speak by the world of numbers shortly.
Let’s calculate with an average mortgage loan of 4.5 million CZK taken for 30 years. Currently, the interest rate of 2,19% seems too high for you, so you keep waiting three months for the fall to 1,89%. What does it mean for you? Savings of 600CZK per month on the payment! That’s 7,200CZK per year! Total savings for 5years fixation is 36,000CZK. Meanwhile, when waiting for the fall, you are paying a friendly rent of 17,000CZK = 51,000CZK for these three months. Money, you could have already invested in your property. Money, you will get back from the lower mortgage payment exactly in 7 years.
The interest rate should definitely be considered when making a decision. Still, it should not play a significant role in your decision making.
Naturally, we always recommend to think carefully about this critical step in your life, calculate its impact on your current and future financial situation, be consistent in choosing a property, etc.
But if you feel that you are ready and do not want to sink your money in the rent, do not speculate on the perfect moment for the purchase. Do not look back, left, right, but run forward.
Do you have any doubts, comments, or are you searching for numbers to verify your idea of purchasing the property? Get in touch with us, and we will be glad to assist you.