An inflationary wave is sweeping the Czech Republic. In June, it reached sixteen percent and is at its highest value since December 1993. The bank is already reacting to the development of inflation by gradually increasing interest rates, which are directly reflected in the price of mortgage loans.
Thanks to more expensive mortgages, together with the regulatory conditions for obtaining a mortgage loan, which were introduced by the Czech National Bank in April, the purchase of real estate is becoming more unaffordable for an increasingly large group of residents.
This tightening is already reflected in the Brno market for new apartments, where sales are falling at a significant rate. Compared to 292 units sold in the first quarter of this year, only 161 apartments were sold in the second quarter. This is the worst quarterly result since 2018.
“Statistical figures of the Brno residential market for the second quarter of 2022 confirm that the problem with the availability of quality housing is becoming increasingly pressing. On the buyers’ side, mortgages became more expensive and the criteria for taking them out became stricter,” says executive director and chairman of the board of the development company Trikaya Dalibor Lamka.
CNB credit indicators
Pointer LTV (Loan to Value) represents the percentage ratio between the higher loan and the value of the mortgaged property. The CNB recommends that, from April 2022, this indicator should not be exceeded for new loans 80% (90% for people under the age of 36).
Pointer DTI (Debt to income) is the ratio of the amount of total indebtedness of the loan applicant and the amount of his net annual income. The CNB introduced this indicator from April 2022 to 8.5 (for young people up to 36 years old 9.5).
Pointer DSTI (Debt Service to Income) is a percentage expression of the share of the loan applicant’s annual average expenses resulting from his total indebtedness (so-called debt service) on his annual net income. Simply said it’s about percentage of the total amount of all monthly installments on net monthly loan applicant. From April 2022, the CNB set this indicator at 45% (50% for young people up to 36 years old).
The bank’s credit indicators take into account for new loans. In the case of refinanced loans (or continuing mortgages after the end of fixation) only if will increase the original loan.
Banks for applicants who are convinced that the loan will pay without problems in the future, make an exception and do not use the limits – every quarter on 5% the total volume of mortgage loans they provided in the previous calendar quarter.
The supply of new apartments is growing
Miroslav Linhart, the leading partner of Deloitte financial consulting, also confirms this trend. “It is obvious that the demand for buying apartments is currently decreasing. One of them is the expensive money for financing housing, the other important reason is a certain degree of uncertainty associated with the situation in Ukraine. People tend to take longer to make decisions or delay purchases in times of uncertainty,” says Linhart.
The change in the trend in the real estate market is also evidenced by the data of the largest real estate advertising portal Sreality. According to him, the supply of new apartments in Brno has increased by two fifths over the past six months. According to Dalibor Lamka, even this increase does not prove that the long-term ratio between demand and supply on the market has changed.
“Those interested in quality, more expensive housing face a lack of offers, which still cost women more,” says Trikaya.
According to Miroslav Linhart from Deloitte, apartment prices should continue to rise in the short term, but at a significantly slower pace due to lower demand.
The square meter of sold apartments exceeded 130,000
The Brno market for new apartments for the period of the second quarter confirms the prediction. The average price of apartments in new buildings slightly increased by less than 1.5% compared to the first quarter.
“This is a surprising development, since the price per square meter in Brno has hardly changed since the second half of 2021. When compared year-on-year, the differences are enormous,” says Dalibor Lamka.
in the same period of 2020, for example, the price per square meter in Brno was CZK 800, for example, the average in 2030 would be CZK 11,000. This year’s CZK 127,200 has once again set a new record.
It is even more pronounced in the case of sold units. While in the first quarter the price was CZK 121,900 per square meter of a sold apartment, in the currently monitored period the amount was already CZK 130,400.
“Although the lower number of sold, but more expensive apartments spoke to this statistic. When compared to the entire year 2021, the average price per meter is higher by a full 30,000. If quick and effective solutions are not found, there will be a danger that housing in the Czech Republic will become practically unaffordable even for the middle class. This will inevitably lead to the degradation of the quality of life and relationships in society,” warns Lamka.
One-room apartments were sold the most
In the second quarter, as in the previous quarter, the greatest interest was in 1+kk units, of which 77 were sold. At the same time, the average price per square meter was higher compared to the previous period and stood at CZK 132,564. This is a difference of almost 4.7% compared to the first quarter.
Available 2+kk apartments experienced even sharper price increases. In the period between January and March, these units were sold for 118,320 CZK, in the second quarter the average price reached 130,000 CZK, which meant an increase of almost 9%.