The central bank is hampering the mortgage business, it will be harder to get a loan
Achieving a mortgage will be much more difficult. From October, the so-called 100% mortgage will disappear from the market at the behest of the central bank, and from next year, interest will receive a loan of only up to 90 percent of the value of the property purchased. Getting a loan can be significantly more if you buy a property for rent. In such a case, the CNB recommends that banks lend only 60% of the estimated price of the collateral. This is stated in the CNB’s Financial Stability Report.
“If the CNB applies stricter rules, we will abide by them. Due to its structure, this step would not significantly affect our portfolio, “said a spokeswoman for Česká spořitelna addressing the ban on mortgages provided for the full price of the property. According to reports from Czech banks, most mortgages are provided for seventy to eighty percent of the pledge price. Those interested in buying apartments for investment in particular may suffer.
“Restrictions on investment mortgages may primarily affect demand concentrated in locations where there is a large real estate market, especially apartments, ie Prague, Brno and regional cities, and the impact may not be negligible,” said Libor Ostatek, head of Golem Finance. According to his estimate, for example, every fourth apartment in Prague is sold as an investment.
Banks are stronger than last year |
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According to the CNB’s stress tests, Czech banks would withstand a severe recession and their condition improved even more than last year. According to the financial stability report, they should not mind the economic downturn into deflation. However, in the event of the worse of the CNB’s two scenarios on the development of the domestic economy, seven banks would fall below the 8% capital minimum. They would have to replenish the capital for about seven billion crowns. However, the probability of such a scenario of a significant decline in economic activity in Europe is low. |
For the time being, banks are not obliged to distinguish between mortgages for the purchase of their own housing and investments. However, the CNB is now calling on financial houses to strictly distinguish between the two types of mortgages. “Using all available information, banks should identify whether the loan is used to finance owner-occupied housing or to purchase real estate as an investment,” the CNB report states. In order to prevent banks from manipulating estimated real estate prices, the regulator intends to pay more attention to the valuation methodology.
Banks provided a record almost 102,000 mortgages worth 184.3 billion crowns a year. In April, the average mortgage rate fell further to a record low of 1.94 percent. The central bank is proposing stricter treatment of banks towards borrowers, mainly due to the threat of future overheating of the real estate market.