Czech Mortgage Rates Spike Sharply Amid Middle East War

The average rate on existing mortgage loans in Czechia now stands at around five percent, while new offers on the market have climbed to 5.51 percent, according to the Czech Banking Association and Swiss Life Select. Banks are currently cushioning the sharper jump by sacrificing part of their own margins.

"If banks returned to their standard margin, mortgage rates would already be sitting at around six percent," Radek Slavík, a broker at Hypodům, told the outlet.

The reason lies in how banks fund themselves: to avoid holding excess cash, they borrow from one another on the interbank market. These interbank loans have been getting pricier since spring because of the war in the Middle East, with a particularly sharp jump in August and September — rates are now hovering just below five percent. The only time they were higher was three years ago, at the peak of the inflation wave.

For a mortgage of 4.6 million crowns, a rate increase of just one percentage point translates into roughly 2,900 crowns more per month. "This is unwelcome news, especially for families whose higher payments eat into whatever is left over after covering everyday expenses," said Dominik Rusínko, chief economist at Patria Finance.

Why it pays to refix sooner rather than later

Tens of thousands of households will see their fixed-rate periods expire by the end of this year and throughout the next — many took out mortgages back when rates were extraordinarily low, around two percent. According to Slavík, it's better not to delay refixing: if the Middle East conflict isn't resolved quickly, inflation — and interest rates along with it — are likely to rise again next year.

The Czech National Bank is holding off on raising its base rate for now — on Thursday, the regulator kept it at 3.75 percent, where it has stood since June. However, bank governor Aleš Michl acknowledged that a hike could come as early as the next meeting in November.

"If people are being offered a rate below five percent, or close to it, right now, I'd advise taking it," Slavík stressed, adding that such favorable terms may no longer be available next year.

For now, banks are still willing to sacrifice a significant chunk of their margin to compete for clients — smaller financial institutions in particular. The cheapest offers on the market for the popular three-year fixation are currently from Fio banka (4.58 percent) and Moneta Money Bank (4.79 percent).

The property market could cool down

Pricier mortgages could dampen demand for buying flats and houses. For now, that demand remains strong and keeps pushing prices up. "The overheated property market is ripe for cooling, and we expect higher mortgage rates to slow the pace of housing price growth," Rusínko added.

A summer slowdown in mortgage interest is another sign the market is cooling: the volume of new loans issued in August dropped 13 percent compared to July, to 26.8 billion crowns. Even so, this year could still turn out to be the second-best on record for the mortgage market.

Source: novinky.cz

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