Czechs borrow record amounts for housing

Compared to last year, house prices rose on average by only half the rate. According to mortgage advisers, the rocketing growth in the amount of mortgages being raised is thus mostly related to the strong purchasing appetite of wealthier buyers looking for more expensive goods.

“The record August average mortgage loan amount of CZK 2.79 million was one of the reasons for the fact that this year’s second holiday month became the most successful August in the history of our statistics for the total volume of mortgages provided,” said Jiří Sýkora, an analyst at Fincentrum & Swiss Life Select. During last August, according to similar statistics, people took out mortgages in the average amount of 2.32 million crowns.

“The average mortgage amount has skyrocketed especially during the last six months,” says Libor Ostatek, head of the consulting company Golem Finance. According to him, the main reason is the growth in demand for more expensive real estate in attractive locations, such as typically Prague flats.

“While the lower-income people affected by the pandemic are more restrained, the interest of wealthier people in more expensive real estate has increased,” recalls Ostatek. Market experts emphasize that this is a combination of relaxed market conditions and expected economic development.

“Concerns about the negative economic development have not yet materialized for relatively well-funded mortgage applicants,” says Jiří Kučera, head of the Luxent real estate agency – Exclusive Properties. According to him, the volume of transactions in the residential real estate market has not changed significantly, and fears of faster price growth have come into play.

“The sharp development of inflation encourages investment in assets, which in the long run exceeds inflation coefficients in terms of yields,” adds Kučera, adding that the appetite of mortgage applicants and at the same time their courage for higher indebtedness lead to higher borrowed amounts. “Many buyers are investors who are primarily concerned with hedging against inflation,” adds the banker, who did not want to be named.

The interest is mainly in quality real estate with higher price tags, which their buyers finance for a relatively significant part with a mortgage loan, and thus push the average loan amount up. “Clients focus on buying larger properties and at the same time keep their own resources for real estate equipment and create financial reserves,” adds Dana Bartoňová, sales director of the development company YIT Stavo.

The Czech National Bank also paved the way for higher mortgages, reducing the mandatory minimum savings rate from one-fifth to one-tenth of the value of the property purchased in the spring in response to the pandemic.

Interest in mortgage co-financing is also growing due to their cheaper prices. So far, the last August figure of Fincentrum Hypoindex on the average interest rate on a housing loan speaks of an annual interest rate of 2.11 percent, which is the lowest since November 2017. As a result, the volume of mortgages provided is one of the strongest in history.

“If mortgage banks maintained the volume of mortgages provided at the level of the summer months, they could also attack records from 2016 and 2017, when they negotiated mortgages worth more than 225 billion crowns,” adds Sýkora.

A strong mortgage market is pushing up real estate prices. According to a September study by the consulting company Deloitte and the portal cenovamapa.org, apartment prices in Prague and regional cities rose by an average of 10.4 percent year on year in the second quarter to 67,000 crowns per square meter. The growth rate was the third highest in the last two years.

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