High inflation is changing the Czech real estate market. Property prices have started to fall after years, but there is a shortage of buyers. Fewer and fewer people are applying for mortgages, because they are already too expensive and interest rates are the highest in the last 20 years. According to data from the Hypomonitor of the Czech Banking Association, the volume of mortgages granted in September decreased by almost a third compared to August. In a year-over-year comparison, it is as high as 80%.
Banks and construction companies granted approximately SEK 7 billion in mortgage loans in September, compared to August the volume and number of loans disbursed fell by around 30%. According to the banking association’s hypomonitor, which works with data from all national banks and building societies, this is the third consecutive double-digit decline.
“The significant slowdown in activity on the mortgage market is also illustrated by the fact that the volume of newly disbursed mortgages in September reached the weakest level since the beginning of 2014. The mortgage market has therefore contracted sharply in recent months. due to high interest rates, stricter credit rules, growing concerns about the development of the economy and generally high real estate prices, “explains Jakub Seidler, chief economist of the association.
According to Evžen Korek of the Ekospol company, the fear of an uncertain future is at the root of the lack of interest in mortgages. “An unprecedented double-digit inflation and, above all, the extreme multiple increase in energy prices, lead many families who were thinking of buying an apartment to postpone this large and often life-long investment. this is evident in the real estate market, the development of which is copying the development of the mortgage market, “he describes.
He adds that according to the company’s current data, the sale of new apartments in Prague has fallen by two-thirds compared to last year and is the worst in the last 15 years.
“It is understandable, because many families finance their new homes with the help of a mortgage. However, it is now inaccessible even to the middle class, which makes their homes inaccessible to hundreds of thousands of interested people. The new apartments in Prague they are therefore now bought by people with their own financial resources in the vast majority of cases, who are trying to protect themselves from high inflation by investing in real estate, “adds Korec.
According to Vlastimil Nigrin, deputy chairman of the board of directors of Hypoteční banka and member of the board of directors of ČSOB Stavební spořitelna, several new trends have emerged in the mortgage market. The first is the significantly higher demand for energy-saving properties. “Our data shows that there has been an increase in interest in all types of loan products that help finance this type of real estate or direct energy saving technologies,” says Nigrin.
According to him, the second trend is the growing supply of recreational properties on the market. “As a result, high energy prices are starting to appear, affecting owners of more properties. A greater supply of leisure facilities can also be reflected in lower prices,” Nigrin predicts.
Interest rates are at their maximum
The interest rate for new mortgages rose slightly in September, remaining just below six percent. According to the hypomonitor, this is at the highest level in the last 20 years, although in 2008 and 2009 they were at equally high levels. “Mortgage rates on offer have reached their peak,” Seidler says.
According to Mark Richter, Air Bank’s head of mortgage services, the onset of a decline in property prices could also affect the mortgage market. “Those interested in a mortgage will be motivated to wait to buy a house or apartment due to the drop in prices. Currently, therefore, I see no reason for a revival of the mortgage market, which with its volumes is similar to 2015. For the same reason, interest rates will probably not increase further, “estimates the analyst.
To give you an idea, an increase in mortgage rates by one percentage point will result in an increase in the monthly payment of around 1,500 crowns for the average mortgage. Compared to the common two percent interest rate on the market in previous years, the current mortgage rate of six percent means an increase in the monthly payment from six to seven thousand crowns.
At the same time, also the amount of the average mortgage that people take out. According to the hypomonitor, in September, as well as in August, it was hovering slightly below the three million crown level, where it was last seen at the end of 2020. “With stricter rules by the NBC and rates of high interest rates that increase the monthly payments, some families have had to reduce the expected amount of the mortgage, “explains Seidler.
180 degree turn
As the mortgage analyst Jakub Veverka of the Videobydleni.cz portal summarizes, the situation in the real estate market has changed 180 degrees in the last year.
“Whereas a year ago everything that brokers collected was sold, now the situation is the opposite. The properties on offer are growing at a rapid pace, but there are no buyers. The real estate market has reached its peak. Our data shows that we are. we have now passed the peak and corrections in various categories await us, “says Veverka.
He estimates that, for example, pre-renovation condominiums can expect prices to drop by as much as 30 percent, as early as spring next year. “We are already seeing a 15 percent drop in offer prices for this category. The reality is at least five percent lower,” he describes the situation. “The seller must make concessions on his needs right at the time of the inspection. The time has come when the buyer has the winning card. If the seller does not make concessions now and wants to choose a waiting tactic, it can happen that he receives even less. for his property in the future, “Veverka points out.
According to data from the portal, the number of offers for the sale of apartments increased by 34 percent in the third quarter compared to the previous one. On the contrary, the demand for the purchase of an apartment fell by almost three quarters.
According to Veverka, buyers no longer want to accept the offered prices. More and more people who, even if they have cash or are currently eligible for a mortgage loan, do not want to accept current prices and prefer to temporarily move into rented accommodation and wait for better prices.
According to him, this is also why rental housing has seen a three-fold increase in demand year-over-year. “For rents, the same rule applies as for sales a year ago. What is taken is rented. Up to 35 percent of the demand for rental housing is represented by those who postpone the purchase of real estate for the future.” , adds Veverka.
Rent three times less than the mortgage payment
The UlovDomov.cz index also confirms that interest in rents across the country is growing. However, it also draws attention to the higher prices of rental housing, which are increasing the unavailability of own housing.
“For example, the price of a popular 2 + kk deal in the capital is an average of 18,798 crowns, which is 2,060 crowns more than a year ago and 1,197 crowns more than the previous summer,” calculates the head of the company. , Michal Hrbatý.
The index also compared the amount of the rent with the mortgage payments at current rates and prices per square meter. For Prague, it reaches a value of up to 3.2, which means that the current rent can be more than three times lower than the loan repayment of an apartment bought on credit.
“The index no longer takes into account the initial costs of the loan or the fact that living in rent, on the other hand, does not mean saving on one’s assets,” explains Hrbatý.
Outside of Prague, the index is slightly lower. However, even in Ostrava or Olomouc, the monthly mortgage payments are no longer comparable to the monthly rent payments. For example, for an apartment in Olomouc category 1 + kk, people pay an average of 9,378 crowns for rent. Repaying a 90 percent mortgage arranged for 30 years at an interest rate of 6.71 percent per year would be about six thousand more, the index shows.
In Brno a 2 + kk apartment is currently available for rent for less than 15,000 crowns, the price per square meter has risen to over 100,000 crowns and a 60 sqm apartment would therefore cost around six million crowns. The repayment of such an apartment with a 90% mortgage would therefore amount to more than 40,000 crowns per month.
According to experts, it is difficult to estimate the further development of the real estate market. Or there will be an increase in the number of people who, due to tight family budgets, will eventually be forced to sell their apartment or house and go to rent, which will increase rental housing prices. Or, conversely, next year mortgage rates will begin to drop significantly and home ownership interest will be renewed.
