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Czech mortgages are twice as expensive as in neighboring countries

Interest rates and mortgages have dropped, but still outpace Germany, Austria, and Slovakia
Tip: Visit Expats.cz Real Estate for 1000s of the latest properties for rent and sale in Prague & the Czech Republic!

While mortgage interest rates have been dropping in the Czech Republic, they are still almost twice as high as in neighboring countries.

Record real estate prices in the Czech Republic have already made housing difficult to afford, and relatively high-interest rates make housing more expensive still.

The average interest rate on mortgages in the Czech Republic fell to 2.30% in May from 2.39% in April. At the beginning of 2020, it was 2.36%, according to figures from daily Právo. The financial website Theglobaleconomy.com gave slightly different figures, with April and May at 2.49%, and January at 2.53%.

In contrast, the average mortgage rate in May in Austria was 1.28%, In Germany 1.33%, and in Slovakia 1.31%, according to Theglobaleconomy.com,

In Germany, the government and the federal states also offer mortgages, in addition to banks. It is common for them to take the environment into account when setting rates, and reduce interest if, for example, the owner makes ecological improvements.

Právo cited an example in Slovakia where someone buying a house near Bratislava could get a three-year fixed rate of 0.89% or a five-year fixed rate of 1.19% from Všeobecná úverová banka.

In the Czech Republic, banks provide mortgages for twice as much. They offer a comparable mortgage of 1 million CZK for over 2% with a five-year fixed rate, with the average at 2.19 percent.

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The only neighboring country where mortgage interest rates were higher was Poland, where the May average mortgage interest rate was 3.33%. Poland is also the only neighboring country not using the euro.

At the beginning of May, the Czech National Bank (ČNB) lowered the two-week repo rate, on which the interest rate on commercial loans is based, by 0.75 percentage point to 0.25%. And before that, it reduced it in March from 2.25% to 1%.

Even though repo rates have approached the historical lows of 2016, large mortgage players in the Czech Republic have not dropped mortgage rates accordingly. This is due to higher risk because of uncertainty in the mortgage market as well as a moratorium on loan repayments due to the coronavirus crisis. Mortgage rates fell slightly, but not as much as in Slovakia or elsewhere.

Experts say that rates in Poland and Hungary are higher than in the Czech Republic in part due to differences in the share of non-performing loans. In Hungary and Poland, the default rate is higher than in the Czech Republic. Another reason may be differences in the insolvency law.

Tip: Visit Expats.cz Real Estate for 1000s of the latest properties for rent and sale in Prague & the Czech Republic!

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