Mortgage market pulls the plug, but the fall is yet to come

The latest Fincentrum Hypoindex indicator numbers so far signal only a slight cooling of the mortgage market, but a gradual rise in interest rates of up to 5 per cent is anticipated. However, the threshold of CZK 400 billion spent on mortgage loans is still expected to be surpassed by the end of the year.

Average mortgage interest has risen for the eighth consecutive month. According to data from Hypoindex, which works with data from eleven domestic banks, the average rate reached 2.54 percent in October, however financial houses are steadily increasing mortgage interest rates. In September, when the Czech National Bank increased base rates by 0.75 percentage points, mortgage supply rates jumped across the market. For example, five-year fixed-rate loans headed for 4 percent. In addition, in early November the CNB caught the market off guard with a sharp interest rate increase of 1.25 percentage points to 2.75 percent. "Only thanks to a two-month delay due to Fincentrum Hypoindex recording rates of mortgages actually granted, with banks processing these loans for around two months, has the increase not yet been reflected in this index. But it is clear that rates will go up and go over the four percent mark and are also likely to hit the five percent mark," says Jiří Sýkora, mortgage analyst at Fincetrum & Swiss Life Select. There has been no slump in demand and the volume of mortgages granted again exceeded CZK 30 billion in October. Banks took out 10,065 mortgage loans in this month, totalling CZK 32 billion. Compared to October last year, the volume has risen by almost CZK 7 billion. Yet it is clear that the mortgage market is beginning to stall. While the year-on-year increase in mortgage lending was 75 percent in August, it was only 38 percent in September and just 27 percent in October. "It is predictable that once the jump in price is factored into the average rate, signature mortgage volumes will also fall," says Sýkora. This year, banks have already taken out mortgages worth more than CZK 355 billion. "The average mortgage loan increased again to CZK 3.19 million in October. Compared to September, when the average mortgage fell by almost CZK 46,000, the increase is minimal, amounting to less than CZK 2,500. This could indicate that the overheated real estate market is starting to cool down," adds Sýkora. Although a rate rise in the next few months is almost a certainty, a longer outlook might not be so pessimistic. “I believe the market could stabilise in the second half of next year,” says CEO of Golem Finance Libor Ostatek. Statistics from three developers – Central Group, Skanska Reality and Trigema – showed a significant drop in new-build sales. Compared to the second quarter, interest in new buildings has cooled by almost half. This was partly because during the holiday months, apartments are selling more slowly and the supply of new developer projects has fallen to a 10-year low. But developers are already calculating less mortgage credit available. “We expect that in the future, investors will buy more apartments and the housing stock will move into rental housing. The scissors between the mortgage payment and the rent will start to open, and people will increasingly have to deal with whether to pay high monthly payments or lower rents," says Trigema owner Marcel Soural.