Czech National Bank Eases Mortgage Rules, Abolishing DSTI Limit for Applicants

On Thursday, the Banking Council of the Czech National Bank (ČNB) eased the rules for granting mortgages. From July, it will no longer require applicants to meet the limit of debt repayments to net monthly income (DSTI). Other rules remain in effect. Experts agree that the move will revive the mortgage market only slightly.

According to Jakub Seidler, the economist of the Czech Banking Association, the abolition of the DSTI limit will help a rather specific group of people interested in mortgages, whose official validity did not allow them to purchase a mortgage. “After an individual assessment, the bank will evaluate that a mortgage with these parameters is manageable for them (for example, a self-employed person using a 60 percent cost flat rate, whose real costs are lower),” he says.

According to him, the abolition of the DSTI limits will probably bring a certain increase in mortgage activity in the coming months, on the other hand, the main limiting factor remains the high interest rates, which are stagnant near the six percent limit. It cannot be expected that the mortgage market would recover significantly in the second half of the year, he added.

Cyrrus Chief Economist Vít Hradil believes that the CNB is not trying to stimulate activity on the mortgage market by canceling the DSTI limit. According to him, such a step would not even make much sense in a situation of double-digit inflation and continued high real estate prices. The CNB’s mandate is exclusively to prevent the risk of financial instability. “Since there is currently no risk from this direction, the relaxation of redundant regulation is the right step,” he pointed out.

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The Czech Republic practically had the toughest conditions for mortgage loans in the whole of Europe, which is why the CNB was attacked for a long time by banks, mortgage companies, etc., to relax this regulation, said Tomáš Jelínek, director of the real estate company Century 21. Repeal of DSTI is the first step towards relaxation.

“This limit is a basic parameter that is assessed by the banks themselves, and it was always reasonable to leave this parameter to the mortgage loan provider, and its determination by the supervisory body (CNB) was senseless from the beginning,” he added. According to him, however, other parameters continue to determine the price that ordinary mortgage applicants can reach.

“Thanks to the abolition of the DSTI limit, clients who repay more loans will be able to get a loan. They therefore have higher monthly obligations and are already in debt and some are even over-indebted. But the banks with which they have a loan will take care of that,” reminded the mortgage specialist at FinGO Jana Vaisová. However, to revive the market, it would be better if the other parameters were also changed, especially the DTI (limit of the applicant’s total debt expressed in multiples of his net annual income), so that the client could obtain a higher loan, she noted.

The decision of the CNB will very likely be reflected in a greater interest of bank clients in mortgage loans, because it is the DSTI indicator that plays a role in the availability of mortgages, said Marek Richter, head of mortgage services at Air Bank. According to him, the reduction of rates could only be caused by competition between banks, since the prices of resources are stable.

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2023-06-02 08:51:23
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