The Czech National Bank Restricts Mortgage Lending — How Significant Will the Impact Be?
As of April 1, 2017, the Czech National Bank (ČNB) introduced new recommendations that most commercial banks have adopted. These concern mortgage lending and were issued in response to fears reminiscent of the 2008 global financial crisis. Until April 2017, obtaining a 100% mortgage was not a major issue — and with interest rates less than half of what they were before the crisis. However, since April 2017, commercial banks have been offering a maximum of 90% loan-to-value mortgages (and exceptionally 80%). Moreover, mortgages in the 80–90% range may only account for up to 15% of a bank’s total mortgage portfolio.
Banks have also responded by slightly increasing interest rates (by approximately 0.3%–0.5%) to offset the new rule that allows borrowers to repay up to one-quarter of their mortgage annually, even outside the fixed-rate anniversary.
Additional burden from the property acquisition tax
Another factor that works against buyers is the amendment to the law effective from November 2016, which imposes a 4% real estate acquisition tax. When applied to a typical case, a buyer seeking a mortgage for a Prague apartment must have saved roughly CZK 1,000,000.
For example, a 2+kk apartment with an area of 57 m², priced at CZK 75,000/m² (total price CZK 4,275,000), financed with an 80% mortgage and subject to a 4% tax, would require approximately CZK 1,026,000 in personal savings.
It is also worth noting that many new developments are delivered without furnishings — no kitchen, built-in wardrobes, or furniture.
Rising rental prices
The ČNB’s measures are expected to push rental prices even higher. It is estimated that about one-third of people will no longer be able to afford their own housing and will have no choice but to rent — with average rent in Prague around CZK 300/m². These developments will further widen social disparities. Wealthier individuals who can finance purchases entirely from their own funds (or qualify for mortgages) will continue investing in real estate. They will then rent these properties — often smaller 2+kk units, which are easiest to lease — to those unable to buy.