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Average Mortgage Rate Fell to 6.1% in the Czech Republic

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In early September, the average mortgage rate dropped to 6.1%, down from 6.19% in August, marking the fourth consecutive month of decline. This data comes from Swiss Life Hypoindex, which compiles its statistics based on information available on the fifth working day of each month. The Hypoindex methodology reflects the prevailing average mortgage offer rate for properties valued at 80% of their total worth.

“After the conclusion of the holiday season, several banks introduced traditional autumn discounts on mortgage interest rates, a trend evident in the Hypoindex data. However, it’s important to note that these are limited-time promotional offers, and the base rate for mortgage loans in banks has remained unchanged. Consequently, the average offer rate still hovers above six percent. Nonetheless, select banks do provide the option to secure a mortgage with a rate nearly one percentage point lower,” explained Jiří Sýkora, an analyst at Swiss Life Select.

For a mortgage loan of CZK 3.5 million, covering up to 80% of the property’s estimated value, with a 25-year term and an average offer rate of 6.1%, the monthly installment decreased by approximately CZK 180 to CZK 22,770.

Similar to the previous month, three-year fixed-rate mortgages experienced the most significant reduction of 15 basis points. For mortgages covering up to 80% of the property’s value (LTV), the average rate dropped to 6.04%, while mortgages tailored to young borrowers under 36 years of age (LTV above 80%) decreased to 6.33%.

One-year fixed-rate mortgages with LTVs up to 80% saw an average drop of three basis points to 6.57%, while one-year fixes for young borrowers remained stable. Rates for all other types of mortgage fixes declined by seven basis points.

Mortgages with a ten-year fixed-rate plan and LTVs up to 80% fell by seven points to 5.95%. This marked the first time since October of the previous year that they had dipped below the six percent threshold. Only five-year fixed-rate mortgages with an LTV up to 80% had remained below six percent since July, dropping another seven points to 5.84%. Mortgages tailored to young borrowers with five- and ten-year fixed rates also saw a reduction of seven points, settling at 6.13% and 6.23%, respectively.

Sýkora emphasized that since most banks had lowered their rates due to limited-time discounts, it would be premature to assume a long-awaited shift towards consistently lower rates. He added that only a substantial reduction in the base interest rates by the Czech National Bank could potentially bring about such a change, although the Bank’s Board currently has no plans to take such a step.

The analyst viewed the gradual decrease in interest rates as a positive development for the mortgage market’s future. However, he expressed concern that this trend could halt or even reverse the declining property prices, attributing this potential shift to both the gradual reduction in mortgage interest rates and the stagnation in new property construction.

“While mortgage offer rates are experiencing a slight decline, these are mostly short-term acquisition deals and not indicative of a trend returning mortgage rates to their previous levels, around two percent,” noted Daniel Rajnoch, director of InvestBay, in an interview with the Czech News Agency. He stressed that such a return to low rates was unlikely in the foreseeable future. Jiří Paták, founder of Patron GO, calculated that if monthly repayments had decreased by CZK 180 since May due to lower rates, but property prices had simultaneously risen by three percent, households would end up paying over CZK 600 more for an average property than they did in the spring. To offset the impact of rising prices, rates would need to fall to 5.8%.



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