Czech mortgage rates rise to 5.96% as analysts eye a peak

Czech mortgages have become more expensive for the eighth month in a row: according to the November Swiss Life Hypoindex, the average rate rose to 5.96%, just under the psychological threshold of six percent. It is a noticeable blow to family budgets, but analysts see signs that the climb is nearing its peak.

How much loans now cost

Since the March low of 4.89%, the average rate has risen by more than one percentage point. On a sample loan of 3.5 million crowns over 25 years, the monthly payment increased from 20,240 to 22,464 crowns. For the same loan, a family now pays 2,224 crowns more a month — almost 26,700 crowns a year. The index gained 0.17 percentage points in November alone, noted Swiss Life Select mortgage analyst Jiří Sýkora. In his words, the six percent line will influence household decisions: whether to buy property, look for a smaller flat or put off the purchase.

The Czech National Bank has also played its part: last week it raised its two-week repo rate by 0.25 percentage points to four percent because of inflation risks. Analysts, however, ask that the November rise in the index not be linked to that decision: banks calculated their rates before it, and financial markets had priced in the tightening in advance.

Why a turnaround is possible

The key signal is interest rate swaps, which banks use as a starting point when setting rates for the most popular three-year fixation. At the end of October they stood at 4.95%, and in the first days of November they fell to 4.6%, the lowest since the beginning of September. The decline began after the results of the U.S. midterm elections. Analysts say markets expect the outcome to increase pressure for easing tensions in the Middle East; this has somewhat calmed oil and gas markets and lowered inflation expectations.

Michal Skořepa, an economist at Česká spořitelna, believes the fall in yields and in koruna rates reflects both the U.S. election results and recent statements by Czech National Bank board members that market rates are too high. Petr Dufek, an economist at Banka Creditas, added that the market has “erased” one expected increase: at the end of October, FRA indicators pointed to five percent rates, and now they are at 4.75%.

Tom Kadeřábek of Swiss Life Select allows that rates may still rise slightly in the coming weeks, but he is increasingly convinced that the peak is close. In his view, there will be room for a gradual decline in mortgage rates in the first quarter of next year, although banks traditionally do not rush to cut them.

What this means for home buyers

If rates stay near six percent for a long time, demand for property will most likely cool, but experts do not expect an automatic fall in prices: there is a shortage of flats in attractive areas, and sellers are in no hurry to offer discounts. As a result, fewer deals are expected. Experts advise buyers to negotiate the price of the property rather than wait for a cheaper loan: according to Sýkora, a price discount is often worth more than a small gain on the rate, because interest terms can be changed when the fixation ends, while the price determines the size of the debt for the whole repayment period.

Around Prague guide on the topic: Mortgages in Czechia for foreigners: who qualifies and how much of your own money you need

Around Prague, based on reporting by e15.cz