Interest on mortgage loans drops to record-low 2.72 pct in July


20.08.2014 08:51

Prague - Average interest rate on mortgage loans in the Czech Republic dropped to 2.72 percent in July, a new record low again since 2003 when the indicator started to be monitored, according to the Fincentrum Hypoindex data calculated by consulting company Fincentrum.


Průměrná úroková sazba hypoték v červenci dále klesla na 2,72 procenta, a dostala se tak opět na nejnižší hodnotu za dobu sledování ukazatele. ČTK ČTK

The previous record low was in June when the average rate was 2.76 percent. The index monitors the average interest rate on mortgage loans irrespective of the fixation period.

Demand for mortgage loans was lower in July than in June. Interest rates are lower this year than in 2013 but the number of clients is decreasing, mainly due to a smaller number of refinanced mortgage loans.

Banks still offered all kinds of special offers and rebates in July and this attracted 8,352 clients to them. Banks signed mortgage contracts worth Kc14.12bn in total, Kc1bn lower than in June.

People started borrowing lower amounts of money. The average size of a mortgage loan fell again in July - to Kc1.69m.

"The row of new special offers did not stop even during the summer holidays. Interest rates did fall slower than in the spring months but a firm bottom still seems to be out of sight," said Fincentrum´s analyst Josef Rajdl.

"Moreover, with the debate about the extension of the [Czech National Bank´s] CNB pledge to keep a relaxed monetary policy, banks are gaining time to think about how much they are willing to cut the rates," he added.

At the beginning of August, the CNB made public data on how many mortgage loans are new and how many are refinanced.

The data show that clients are taking mainly new mortgage loans this year, while refinanced loans stay in the background.

In the first half of this year, 21 percent of the loans were refinanced loans. Only a third of the clients whose fixation period ended this year decided to transfer their mortgage loan to a different bank.

"The first offer of banks is mostly drawn up with sufficient space for negotiation. Banks logically try to make profits and have no reason to offer a lower rate when there is a chance that a client will accept even a higher rate," Rajdl said.

"It is mostly not necessary to refinance loans. Banks are beginning to realise that gaining a new client is more expensive than keeping the one they have," he added.

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