Perhaps as early as Thursday, the Czech National Bank will approve the reintroduction of credit limits on mortgage loans, which it canceled last spring due to a coronavirus pandemic. According to some economists, this would be a rescue brake at a time of rising inflation. At the same time, many people will have to forget about their mortgages, and therefore their own housing.
Currently, there is one credit limit for mortgage applicants. This is the so-called LTV indicator of 90 percent, which is the ratio of the amount of the mortgage loan and the value of the mortgaged property. This means that the applicant can get a loan of up to 90 percent of the property price, 10 percent must have their own.
The central bank is expected to add two more to this limit, which it canceled last year due to a pandemic. If he doesn’t do it now, then in the near future. This is a DTI limit, which means that the size of the total debt should not exceed a certain multiple of the applicant’s annual income. It is uncertain whether the bank will lean to eight or nine times.
Another is the DSTI limit, which says that the amount of annual loan repayments should not exceed 40 or up to 50 percent of its annual income.
“Already in the middle of this year, the CNB warned that the lending activity of at least some Czech banks is on the verge of endurance. Michal Skořepa, an economist at Česká spořitelna.
In September, the return of the restrictions was announced in an interview for Aktuálně.cz and a member of the Bank Board Tomáš Holub. In his opinion, now is the time to start cooling the mortgage fever. He warned in particular about intergenerational mortgages for 40 years and more: “It annoys me that banks come with this instrument at a time when they have a mortgage harvest. It seems a little greedy to me,” he said.
“Our task is to spoil this ‘party’ a bit and prevent us from having a headache tomorrow,” Holub added.
The novelty is that if the Czech National Bank introduced these two limits for the provision of mortgages, all banks will have to accept this decision. An amendment to the CNB Act has been in force since August, giving the central bank greater powers. Whereas before the amendment she could only recommend the limits, now she will order them.
“Credit limits would be announced against the background of the already valid amendment to the CNB Act, and would thus be binding on all mortgage lenders, ie both banks and non-bank providers supervised by the central bank and cross-border entities that offer mortgages in our territory. for example, for branches of foreign banks, “says Petra Vodstrčilová, spokeswoman for the Czech National Bank.
He adds that the limits would be announced in the document “Measures of a general nature”, which according to the law takes effect four months after its publication on the CNB’s official bulletin board. “Therefore, they would start to apply in the spring of next year and the banks would have enough time to prepare new rules,” adds Vodstrčilová.
It will cool the overheated market
“I see the tightening or reintroduction of limits in the residential real estate sector by the CNB as a suitable solution that would help cool the overheated mortgage market. I believe that if it does not join it this month, it will happen within a few weeks,” says Patrik. Rožumberský, economist at UniCredit Bank.
At the current limit, the LTV then sees it as a real reduction from 90 percent back to 80 percent. “This would create a bigger cushion to reduce the impact of a debtor’s failure on banks in a possible correction in property prices. DTI and DSTI indicators offer the reintroduction of nine and 45 percent limits, respectively, which should act as a precautionary protection for potential borrowers in the current steep growth. mortgage rates, “adds Rožumberský.
According to Veronika Hegrová from Hyponamír.cz, the introduction of limits would be more of a rescue brake against a sharp increase in installments due to rocketing prices caused by rising interest rates.
“DTI and DSTI indicators can correct clients’ refinancing efforts, because the new bank will reassess the client’s creditworthiness, ie the client will not be able to refinance or take extra money to refinance, for example, which is a common phenomenon,” says Hegrová.
However, according to her, some banks have not stopped using the limits, even if they have not been in force for more than a year. “Less than half of the banks still calculate the previously set indicators, ie DSTI up to 45 percent and DTI up to nine, very few banks have stopped monitoring the coefficients completely, others have made minor adjustments there towards easing. there will be no big change, “adds the mortgage expert.
As Tomáš Bumbálek, Salutem Fund manager and real estate expert, points out, the combination of rising interest rates, still rising real estate prices and skyrocketing inflation could mean existential problems for applicants who are now barely able to pay.
“The introduction of credit limits is therefore the right step to help protect those applicants who go with the family budget so-called ‘on the blood’. At the same time, it is clear that the availability of their own housing will deteriorate. more and more rental housing than mortgage – financed housing, “says Bumbálek.
He adds that real estate investors, who are able to take advantage of the trend of a gradual shift towards rental housing, can benefit from the situation, both in the form of their own real estate and in the form of investments in real estate funds, whose income is generated from leases.
The mortgage market is slowing down on its own and young people are “green”
However, Broker Consulting analyst Martin Novák does not make sense if any limits are set. “Especially because at the time of the covid crisis, the bank abandoned monitoring these parameters and relaxed the conditions. In fact, I did not see the disintegration at that time as a step in the right direction. I believe that is slowing down due to rate increases, “says Novák.
This year will be a record year in the mortgage market. The volume of provided mortgages should reach 400 billion crowns this year. Especially in the spring months, interest in loans was huge, now interest is slowly declining, due to rising interest rates.
At the same time, the amended Act on the CNB favors young people under the age of 36 in terms of credit limits. The reason is to make it easier to get a mortgage. The conditions for the DSTI indicator are five percentage points lower, for the DTI by one time the annual income and for the LTV by 10 percentage points.
But David Eim of Cheetah Finance finds this quite unnecessary. “Involving the age of clients in market regulation doesn’t make sense from a macroprudential point of view. It’s clearly a non-systemic parameter implanted in the law for politicians to approve it and say how they thought of young families,” says Eim.
According to him, last year’s abolition of mortgage limits was surprising on the part of the CNB and did not make much sense. “There was a period when the market literally broke free. By that I don’t mean that it caused a loosening of regulation, but some influence must inevitably be there. That’s why I think DTI and DSTI will now limit the central bank. So I’ll guess: at DTI “at nine and at DSTI at 45 percent. And in fact, I probably wouldn’t be surprised if it was eight at DTI and 40 percent at DSTI. And younger, of course, looser,” adds Eim.
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