July 2020 sets record for volume of Czech mortgages as interest rates drop to 2017 levels

Interest rates on mortgages continue to fall, and overall volume an loan numbers are rising

Raymond Johnston

Written by Raymond Johnston
Published on 19.08.2020 15:03 (updated on 19.08.2020)

The mortgage market continues to break records, despite the coronavirus pandemic. July 2020 became the strongest July in the history of the Fincentrum Hypoindex. The fall in the average interest rate also continues, putting the mortgage market on track for record results.

The average interest rate on mortgages fell by six basis points to 2.15% in July. Although the pace of decline slowed compared with May and June, when the average interest rate fell by nine basis points, the trend may not change in the coming months.

“The average interest rate continues to fall and today stands at the level of November 2017 at 2.15% and in our opinion there is no relevant reason for reversing the trend in the foreseeable future,” Jiří Sýkora, product management specialist at Fincentrum & Swiss Life Select, said in a press release.

In July 2020, banks provided mortgages in the total amount of 21.597 billion CZK. This July became the strongest July in the history of the Fincentrum Hypoindex indicator. Year-on-year, the volume of mortgages provided increased by more than 6 billion CZK and, compared to June, by more than 650 million CZK.

Both the volume and the number of mortgages provided grew in July. Banks have negotiated 7,867 mortgages, which is 1,252 more mortgages year-on-year and 246 more mortgages than in June this year. May 2020, though, was the weakest May in a decade due to many banks having limited operations due to the pandemic.

“Even thanks to the rate cut, sales are at a record level and with a volume of 21.597 billion CZK, this July became the most successful July in the history of Fincentrum Hypoindex. And thanks to the last few months, there has been talk that this year can become a record year, precisely in the volume of mortgages provided” Sýkora said.

From January to July this year, mortgage loans were provided for more than 131 billion CZK Previously in the first seven months of the year, banks managed to provide mortgages worth more than 130 billion CZK only in 2017, and that year became just the second-most successful year in the history of Fincentrum Hypoindex, with a full-year volume of mortgages of 225.798 billion CZK.

The record is still held by 2016, when banks provided mortgages worth 225.809 billion CZK. In the first seven months of 2016, the volume of mortgages provided reached almost 122 billion CZK. In November 2016, however, people, for fear of a new law on consumer credit, arranged mortgages for almost 30 billion CZK, and for the first time in history, the limit of 225 billion CZK was broken, according to Fincentrum.

If the mortgage market is not out of breath, there is a chance that this year will attack record volumes from 2016 and 2017. However, given the not-very-favorable predictions from the beginning of the year and the coronavirus pandemic, it would be a great success for banks if the volume of mortgages provided exceeded 200 billion CZK, Fincentrum added.

The average mortgage amount reached 2,745,277 CZK in July. For the first time since February 2019, the average mortgage fell.

The development of the average amount of a mortgage loan goes hand in hand with the development of real estate prices. A decline in the average mortgage may thus indicate that real estate prices are falling. However, it is still too early to reach a conclusion due to the fact that the average mortgage fell by only 3,677 CZK compared to June.

The excellent results of the mortgage market are supported by the constantly declining mortgage interest rates. Although the Czech National Bank (ČNB) did not change rates at the beginning of August and will probably not change them in the foreseeable future, and the decline in the average interest rate is slowing down, there are still banks that repeatedly cut rates well below 2%.

At the end of July, for example, Fio banka did so, offering new mortgages with a fixed term of 1.48% for one year, 1.58% for three years and 1.68% for five years. Cheaper for five-year fixations is only mBank, where it is possible to arrange a mortgage from 1.64%.

Banka Creditas also decided to reduce mortgage rates below 2% in July, with a three-year fixation to 1.89% and a five-year fixation to 1.99%. Sberbank has also lowered mortgage interest rates below 2%. With effect from August 10, it is thus possible to obtain a mortgage with a fixation for five, seven and ten years from 1.79% at Sberbank.

Fincentrum Hypoindex evaluates the development of mortgage prices over time. It is a weighted average interest rate at which new mortgage loans for individuals are provided in a given calendar month. The weights are the volumes of loans provided. Input data for the calculations are provided by the following banks: Air Bank, Česká spořitelna, ČSOB, Equa Bank, Moneta Money Bank, Hypoteční banka, Komerční banka, Raiffeisenbank, Sberbank CZ, UniCredit Bank and Wüstenrot hypoteční banka.