Czech average mortgage rate fell 0.02 points to 5.49% in July

The average mortgage rate fell slightly in early July, down 0.02 percentage point from the previous month to 5.49%. It remained at its lowest level since May 2022, according to the Swiss Life Hypoindex, which is compiled on the basis of offer rates at the beginning of each month. The methodology reflects the current average mortgage offer rate for 80 per cent of a property's value.

As a result, mortgage rates have fallen by 0.88 percentage points since the peak in February 2023, when the Hypoindex rate was 6.37 per cent. In addition, the Czech National Bank cut its key rate by 2.25 percentage points over the same period.

"It is thus evident that despite the Czech National Bank's renewed reduction in key interest rates, mortgages have not become much cheaper and banks continue to follow a course of very gradual rate cuts. In addition, for some mortgage fixations at 80 per cent LTV, which is the ratio between the mortgage amount and the value of the mortgaged property, the banks, on the contrary, resorted to raising interest rates," said Swiss Life Select mortgage analyst Jiří Sýkora.

If a client has selected a property and would like to wait for a reduction in mortgage rates to apply for a mortgage, he recommended not to wait. According to Sýkora, he might not see a significant reduction in the foreseeable future. In the current situation, clients are most likely to reach for shorter mortgage fixations, such as one-year or two-year, or at most three-year mortgages, the analyst added.

Given that the approved maximum early repayment fee effective from September this year does not match the amount the banks lobbied for, he said it is almost certain that they will continue to make a provision on every new client. "So some significant cheapening of mortgage rates is not to be expected," he noted.

The monthly repayment of a mortgage loan for 3.5 million crowns arranged up to 80 percent of the estimated price of the property at a maturity of 25 years and an average offer rate of 5.49 percent was 21,475 crowns in July. It has fallen by CZK 45 month-on-month and by about CZK 1,000 since the beginning of the year, the data show.

The CNB Bank Board cut the two-week repo rate by 0.5 percentage point to 4.75 percent at its meeting on June 27, 2024. "Apparently, this was the last time it proceeded to such a significant cut. After the holidays, it is likely that the CNB will slow down and cut its base rate by just a quarter percentage point," Sýkora estimated.

Source: Swiss Life Hypoindex and CTK