Although interest rates in the first months of this year were around 2.6% pa on average, there was interest in new mortgages.
This trend continued in February and March. In these months, however, we began to panic in connection with the covid – 19. In March, the impact was already very noticeable. A number of branches closed, and bank employees remained in the home office or in quarantine. As well as many intermediaries and clients, which began to have an impact on the cash flow of families.
The Czech National Bank responded to the situation by repeatedly lowering interest rates, recommending the abolition of the DTI and DSTI parameters, and recommending that the maximum LTV be increased to 100%. However, banks often went against the CNB. Some maximum LTVs often decreased – even to a maximum of 60%.
Banks also acted against the CNB’s recommendations in the area of interest rates, when, on the contrary, they raised their rates. Some have even suspended lending altogether, essentially overnight.
Covid has taught banks to deal with the approval process online
In addition to the huge uncertainty about what will happen next, the banks struggled with the process during this period. Due to the large absence of employees at the branches, they tried to simplify the whole approval as much as possible and solve it online – based on scanned documents, sending by mail, etc. They all tried to avoid contact between clients, intermediaries and bank employees.
In the beginning, therefore, the deadlines were longer than usual, over time, the banks experienced a new process and negotiations were usually negotiated without major difficulties. Banks, intermediaries and clients began to make extensive use of various online tools for mutual contact. Many negotiations took place via various video chats such as Skype or Zoom. All parties switched to this communication very quickly, and I would say that this path has worked very well, and I take it as a positive experience that covid – 19 has taught us in a big way.
Even at this time – March, April – we noticed great interest in mortgages and year-on-year numbers grew.
Year-on-year mortgage numbers are rising
In May, the situation began to calm down. Banks, intermediaries and clients have started to meet more, and the process is slowly returning to the “pre-vision” regime. Banks adjust rates, there is often a reduction, LTV is also adjusted.
Banks limit or completely eliminate DTI and DSTI. There is suddenly more room for adjustment of methodologies, especially in the area of creditworthiness scoring. Banks are examining income more, especially the source of income. For example, whether the applicant’s income does not come from an area that has been significantly affected by the epidemic. People from the segments of tourism, artistic activity, accommodation services and gastronomy have the biggest problems.
Banks are also focusing more on entrepreneurs, especially the self-employed – they check, for example, whether the entrepreneur has applied for support from the state – this signals for the bank that its income is or will be endangered. Some banks add interest rate surcharges to applicants for entrepreneurs.
In June, the situation is calm, everything is returning to the old ways. Interest rates are falling, in June they average around 2.3% pa The year-on-year market is growing quite significantly, in the volume of new mortgages by about 25%. However, this is also due to the fact that real estate prices are constantly rising, and therefore the average mortgage amount and total volume is also growing.
Far more objective is the indicator of the number of new mortgage loan agreements. Here, too, we recorded a year-on-year increase of more than 7% in the first half of the year. So it can be seen that interest in mortgages is still high and this trend should continue for the rest of the year.
I expect a reduction in interest rates and the autumn campaign
July and August are one of the weakest months in terms of trade every year. We will probably see a further reduction in interest rates and I expect the banks to start preparing various campaigns at the end of the holidays (eg the popular free estimate). The autumn months are among the strongest in business, and banks will try to make the most of September and October.
The topic of the first half of 2020 was also a proposal to abolish the 4% real estate acquisition tax, which has already been approved by the Chamber of Deputies. At the same time, the benefit of deductions of interest paid from the tax base, which the Ministry of Finance wanted to abolish, should be maintained. The Chamber of Deputies passed a proposal to maintain this benefit, but the maximum deductible amount should be reduced from CZK 300,000 to CZK 150,000.
The tax abolition should also be valid retroactively. And for all who acquired real estate in December 2019 or later. If the property owner has already paid the tax, he can ask for a refund of the overpayment that occurs. The bill is currently being discussed by the Senate.
So it seems that despite the huge intervention, which undoubtedly was and is covid – 19, the year 2020 will be relatively strong. At least the first half of the year testifies to this.