• Alexandra Kurbanova, real estate agent

CNB has decreased the basic interest rate. What does it mean for mortgages?

Updated: Jun 25, 2020

The measures against the spread of coronavirus have greatly influenced our lives within last couple months. Naturally we may worry about our health, but there are also concerns about how the economy would do and what it means for us. Among the questions I’m often asked now are those about the changes in mortgage rules. Although financing is an important part of a real estate transaction, it’s out of my direct competency. I do have though a team of financial specialists with whom I’m working to help my clients financing their purchases. Here are their answers to two most common questions I receive now.

The Czech National Bank (CNB) has lowered interest rates to 0.25% and have eased the terms to get the mortgages. Question 1. Did the mortgage interest rates drop and by how much? It’s important to understand that CNB rates and final rates for clients are not the same. There is no direct correlation among those two. It always depends on the decision of a particular bank, on their concerns about situation development, the management of their own credit risk. We do not expect a general and massive reduction in interest rates on mortgages. Some rather smaller banks have already reduced the rate, but this does not necessarily mean that more clients will reach for a low-rate mortgage. Even a dramatic reduction in interest rates by the CNB to the level of the so-called technical 0% does not mean that banks will react widely, or that they will react immediately. We have similar historical experience from the time of the so-called mortgage crisis more than ten years ago. At that time, the CNB lowered rates more sharply than today, but the market has reacted to it only in 18 months. Question 2. Is it easier to get a mortgage now that the CNB has eased the terms? The CNB has relaxed some parameters for obtaining a mortgage (banks can finance up to 90 percent of the value of a real estate, the ratio of monthly debt repayments to income has increased). Although some institutions have relaxed the conditions, some are maintaining them unchanged and there are also those that have tightened the parameters. They react to thousands requests of mortgage payments postponement and prepare to potential growth of unpaid mortgages and credits. If you want to finance a property with the help of a mortgage, now more than ever the bank conditions will depend on individual negotiations with them. It’s especially true for the foreigners. Thus, the importance of a skilled mortgage broker cannot be underestimated. Feel free to reach out to me and I’ll be happy to share a contact of a trustworthy mortgage professional who will help you to obtain mortgage under the best terms.

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