NEWS
Mortgages are still getting cheaper. But don't expect a big drop
Mortgage interest rates in the Czech Republic continue to fall slightly and are approaching the 5% mark after three years. According to Swiss Life Hypoindex, the average offer rate reached 5.05% in March and could fall below this psychological threshold in April. This would provide further relief for new mortgage applicants, for whom high interest rates have made access to home ownership very difficult in recent years.
Still, there is no reason to be overly optimistic. "Yes, mortgages are cheaper than they were a year ago, but they are still at levels that cannot be considered outright bargains. I expect that rates will remain around 5% for many months to come, and a more significant cheapening will only occur if the Czech National Bank proceeds with more aggressive interest rate cuts, which does not seem like a likely option yet," comments Filip Veselý of MORITZ & BAKER.
Rent or mortgage? The gap is narrowing
The high mortgage rates of recent years have led to a massive growth in demand for rental housing, which has driven rental prices to historic highs. However, as rates have fallen, the situation is beginning to reverse and monthly mortgage payments are gradually approaching the monthly rent. A model example shows that the monthly mortgage payment of CZK 3.5 million at a rate of 5.05% has fallen to CZK 20 555, which is CZK 2 800 less than two years ago. If rates were to fall further, we could find ourselves in a situation where it would again pay to buy rather than pay rent in the long term.
"People who have been staying in rented accommodation in recent years because of expensive mortgages are now looking at owning their own home again. If rates fall below 5%, I expect interest in mortgages to increase again and demand for owner-occupied housing to revive, which could have a secondary effect on property prices," explains Filip Veselý.
Space for further decline is limited
Although banks have been gradually cutting rates in recent months, no significant decline is expected. Several factors—from the Czech National Bank's policy to the macroeconomic situation and the global financial markets—will determine the next development. If inflation were to rise or problems in the international economy were to occur, this could negatively impact banks' willingness to cut rates further.
"It is important to remember that mortgages will not be as cheap as they were in 2021. Rates of around 2% then were extraordinary and it would be naive to expect them to return. A realistic scenario is that rates will stabilise between 4% and 5% in the next few years, which could be acceptable for most homebuyers," adds Filip Veselý of MORITZ & BAKER.
A revival of the real estate market? Rather gradual
The fall in interest rates may support a recovery in the real estate market, but it will not be a step change. "Some buyers are still waiting for further rate cuts, which means the return to full market activity will be rather gradual. However, in some segments, such as new buildings in metropolitan areas, we can see that buyers' interest is slowly returning," says Filip Veselý.
On the other hand, in regions where the market has been less active in recent years, the fall in rates may attract new buyers, but at the same time, it will have to be taken into account that banks are tightening the conditions for obtaining a mortgage. "I expect the market to stabilise, but I do not expect a return to the boom period. It will also depend on other factors, such as the availability of building land or the willingness of developers to adapt to the new conditions," concludes Filip Veselý.
What is the strategy for buyers?
People planning to buy a property should monitor not only interest rates but also the conditions of individual banks, which can vary significantly. A three- to five-year fixation is now the most advantageous option, as it offers lower rates than long-term fixations and allows for a more flexible response to further market developments.
"A simple rule applies for buyers - don't wait for unrealistic rates, but consider the overall financing terms. It may be worth taking out a mortgage with a shorter fixation and refinancing it later if the market continues to develop favourably," recommends Filip Veselý of MORITZ & BAKER.
As a result, even though mortgages are getting cheaper, a sharp decline is not expected. The real estate market will gradually start to recover, but it will definitely not be the leap back to cheap mortgages that some buyers are waiting for. The key will be to time the purchase correctly and choose the optimal financing strategy.
