The mystery of mortgage madness. People are taking loans for increasingly expensive apartments, showed the September hypoindex

Despite the second wave of the pandemic and the partially subdued economy, interest in mortgages is extreme, banks say. According to the hypoindex, which has been monitoring the housing loan market for a long time, this year may break a historical record. At a time of coronavirus crisis, this is something no one expected. Unlike the previous recession, real estate prices are also rising continuously in the current recession. How do experts explain the “covid paradox”?

“We record over five thousand applications for mortgages worth more than 13 billion crowns. Interest is growing extremely, in the last month and a half it has risen by 493 percent year on year,” says Moneta spokeswoman Zuzana Filipová.

He adds that the extraordinary demand for mortgages concerns not only the negotiation of new housing loans within the branch network or arranging through third parties, but also the refinancing of existing mortgages.

Česká spořitelna also confirms people’s greater interest in borrowing from buying an apartment or house. “Year-on-year, at the level of the first half of the year, we are registering an increase in interest in new mortgages by about 50 percent,” says savings bank spokesman Filip Hrubý. According to him, among the applicants there are some people who take out a loan to buy an investment apartment.

As follows from the data of the hypoindex, not only this September, when people arranged mortgages in the amount of 22 billion crowns, but also this year they are very successful.

“Data for the first nine months of this year show that this year the mortgage market is doing extremely well despite the coronavirus pandemic. Banks have already provided mortgage loans worth more than 172 billion crowns. Such a volume was not negotiated by banks in the first three quarters or record years 2016 and 2017,” says Jiří Sýkora from Fincentrum & Swiss Life Select, which prepares the hypoindex every month.

According to him, in order to break the record from 2016 and 2017, it is enough to provide banks with mortgages worth almost 53.5 billion crowns by the end of the year.

The market is behaving differently than in previous crises

Perhaps all observers of the Czech economy are shaking their heads at the great interest in mortgages. Especially when real estate prices are rising despite the coronavirus and recession.

“In the Czech Republic, house prices rose by 1.6 percent quarter on quarter in the second quarter, which is the slowest growth in the last two and a half years, but they were still 7.7 percent more expensive year on year. If we look at the development of prices of older and new flats, so this time their pace almost matched, “says Petr Dufek, an analyst at ČSOB.

He reminds that the real estate market is basically not reacting as in the previous two recessions, when, on the contrary, flats became cheaper. “The reason is probably cheap money. Not only in terms of the possibility of borrowing it, but above all investing it. Lack of investment opportunities at a time of negative interest rates and negative bond yields have simply made real estate markets more attractive in some countries so that investment in apartments has become sought after. opportunities, “explains the analyst.

Economist of Česká spořitelna Michal Skořepa offers another explanation. But as he says, the stunning numbers of negotiated mortgages do not have a sign with an explanation, so you can only work with hypotheses.

“The connection with coronavirus may be, for example, that after the spring quarantine and emphasis on working from home, many residents of Czech cities came to the conclusion that they should buy an apartment or house that will be larger or have a garden, terrace, balcony or at least a loggia, in short a few square meters, where you can stay freely in the air even during the toughest curfew. Alternatively, many of us probably want to buy a cottage, cottage or apartment in the countryside or in the mountains in addition to our existing city ‘prison’, “offers one from the hypotheses of Skořep.

According to him, only a very slight increase in unemployment gives courage to households that are able to put together the appropriate amount, even through a mortgage.

According to the savings bank’s economist, another source of strong demand may not be related to coronavirus. “Among the loan applicants are people who take the purchase of real estate, most often a small apartment in a big city, as an investment. They may be buyers trying to protect their savings from low returns on other types of investments. Or they may be daredevils who they will borrow for such a purchase because they believe that mortgage interest rates are still significantly lower than rental income, or we may come across people who have been in business since the 1990s, now selling their companies and buying apartments for money, for example for their children, “says Skořepa.

But it is investment apartments that are a bit “dangerous” for the market. The market for houses and flats can fall victim to a “bubble”. “Thus, a situation where many buyers get the feeling that it is simply impossible to buy, because for some esoteric reason, prices will still go up, faster than other types of investment. But sooner or later such a bubble will burst, prices will start to fall back to ‘realistic’ levels, often even below them, and many investors will suffer badly, “warns Skořepa.

According to him, the bursting of this bubble is all the more dangerous because it would endanger the Czech construction industry through subsequently stopped investments in construction. And through possible mortgage defaults, it could also tarnish the stability of the Czech banking sector and the entire economy.

The bubble has not burst yet, on the contrary, prices will continue to rise

However, real estate prices in our country are likely to rise in the coming months. The supply of flats is weak, while the demand is strong, which means upward pressure on prices.

According to both Skořepa and Dufek, the growth of real estate prices in the Czech Republic will not slow down significantly in a few quarters, let alone turn into a decline. “Despite the economic problems, it still does not look like a decline in house prices. Developments in the real estate market may thus continue to diverge from the economic cycle, although at least a slowdown in price growth seems likely,” Dufek predicts.

Mortgages are more affordable than in previous years

In addition, mortgages are becoming more accessible due to the crisis. Already in April, the Czech National Bank relaxed the limits of three credit indicators for assessing applications for new mortgages. It increased the mortgage limit in relation to the value of the mortgaged property (LTV) to 90 percent from 80 percent.

The ratio between the monthly repayment of all loans versus total net monthly income (DSTI) increased from 45 to 50 percent. It canceled the ratio of the amount of debt and the net income of the loan applicant. And to top it all off, the average interest rate is falling, which has a big influence on people’s decisions.

“The average interest rate on mortgage loans fell by four basis points in September, the same as in August, to 2.07 percent. Over the last six months, the average mortgage rate has fallen by 0.37 percentage points. It has fallen by almost one percentage point, “says Jiří Sýkora from Fincentrum, who also expects a further decline, as banks continue to make mortgages cheaper.

With effect from 5 October, the ČSOB Group reduced interest rates on mortgage loans by 0.1 percentage point to 2.09 percent. Raiffeisenbank has been offering mortgages for the same price since the beginning of October. From October 14, Air Bank also reduced mortgages by 0.2 percentage points to 1.99 percent.

“Since last week, when we reduced rates, we have seen an increase in the number of applications, both for new and refinanced mortgages. Now also in the pilot mode, we enable online real estate valuation for refinanced mortgages,” says Airbank spokeswoman Jana Pokorná. which low rates attract a lot of applicants to the bank.

“Next year, many people end their five-year fixation and it can be expected that some of them will want to fix the new interest rate at the end of this year or the beginning of the new year, so in one of the scenarios in the coming months we expect a further increase in mortgages. The second scenario is affected If the movement of people were restricted in the autumn as well as in the spring, this would also hamper the immediate demand for mortgages, but it can be expected that, as in the spring, when spring demand spilled over into the summer months, the same would it also happened at the beginning of next year, “adds Pokorná.

Number (in pcs) Volume (in billions of CZK) Interest rate
Month year 2019 2020 2019 2020 2019 2020
members 4764 6 491 10,93 16,88 3,00 % 2,36 %
February 4961 7 092 10,881 18,59 2,99 % 2,42 %
March 6658 5 503 14,746 13,84 2,9 % 2,45 %
April 6395 6 744 14,615 17,85 2,85 % 2,39 %
May 6977 6 203 15,927 16,49 2,8 % 2,3 %
June 7119 7 621 16,498 20,95 2,76% 2,21 %
July 6615 7 867 15,435 21,6 2,68 % 2,15 %
August 6153 6 868 14,294 19,17 2,61 % 2,11 %
September 6359 7 872 15,007 22,05 2,47 % 2,07 %
October 7027 16,953 2,36 %
November 7305 18,301 2,35 %
December 7074 17,996 2,34 %

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