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Once you’ve decided to put down roots in the Czech Republic, buying a home can be a natural step. The good news is that both EU- and non-EU citizens are eligible for mortgages, according to Tomáš Jedlička senior advisor at financial consulting firm Fincentrum.
“For EU citizens, most banks simply require temporary residence and a Czech rodné číslo — no additional rules usually apply and income from EU countries is accepted. For non-EU citizens, permanent residence and working history in the Czech Republic are required.”
The not-so-good news? Recent caps on mortgage lending and skyrocketing real-estate prices present challenges to the first-time borrower. Jedlička offers these points to consider before you take the property plunge:
1. Property prices in Prague and the Czech Republic are historically high.
The Czech economy is stable and growing. At the same time, residential real estate prices continue to rise. Housing shortages, especially a lack of flats and homes in Prague, create a high demand which pushes prices upward and according to Jedlička, the situation is not expected to change significantly in the near future. In addition, loan conditions have been tightened by the Czech National Bank to make cheap loans less affordable. This works as a protection against a price bubble on the housing market.
2. The terms they are a-changing.
New rules issued by the Czech National Bank (CNB) from October 1, 2018 state that the value of all loans cannot exceed nine times the yearly net income and the monthly installment on the loan cannot exceed 45% of monthly net income. In addition, loan to value (LTV) should not exceed 80%, though banks usually offer 90% LTV for a higher interest rate. Jedlička breaks down an example:
“Let’s suppose the client does not have any other loans and decides to buy a 6 million CZK apartment in Prague. The value of the loan (80% LTV) will be 4.8 million CZK. In such a case the client’s yearly net income must exceed 534,000 CZK (4.8 million/9). A monthly installment with an interest rate of 2.9 % and 30-year payment period will be approximately 20,000 CZK per month.”
Which means you’ll need to make at least 45,000 CZK a month to purchase this kind of property in Prague.
3. Flexibility is a must.
Due to record-high property prices, especially in Prague, more and more foreigners are purchasing homes in satellite communities outside of the Czech capital, which offer easy access to the center by car or public transport, says Jedlička.
Cities such as Kolín, Neratovice, and Kladno offer proximity (less than 40 minutes to Wenceslas Square) and relatively lower property prices. Beroun, Slaný, and Řičany are also popular commuter communities among expats. For those who are handy, there are also subsidies to be had if you construct a low-energy home or reduce the energy consumption of an existing family house.
Search for “Nová zelená úsporám” to read more about these initiatives which cover up to 50 percent of the costs of furnaces, window replacements, or solar panels.
4. Mortgage brokers can help.
A mortgage broker is an intermediary who works with multiple lenders and is paid a referral fee by the lenders. Mortgage brokers such as Mortgages.cz, are a one-stop shop, offering complete real-estate financing and legal guidance to both foreign individuals or property investors. Working with them is a popular option among borrowers because many banks offer discounted rates to mortgage brokers who bring them business. Mortgage agents can also help you secure mortgage approval when you wouldn’t normally get it from a bank. And for those who don’t speak Czech, having one on your side is a no-brainer.
One caveat, when it comes to mortgage brokers, however: don’t let them talk you into additional services that don’t make financial sense to you (on the other hand, brokers can help you acquire the building insurance that is required by the bank).
5. Don’t qualify? You’ve still got options.
Other options include asking a family member to pledge collateral on your behalf or setting up a stavební spořeni (building savings) account with state contributions; while it doesn’t provide the best interest on the market establishing such an account could entitle you to a better offer with less strict conditions than regular banks after two years saving. Jedlička can help English-speaking clients navigate these options.
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