CBA Hypomonitor: Mortgage market activity continued to grow in October
Average mortgage rate fell to 4.9 per cent
Prague, 18 November 2024 - In October this year, banks and building societies granted mortgage loans worth more than CZK 26 billion, of which nearly CZK 22 billion were actually new loans. Compared to September, mortgage activity increased by almost 10%, which is, however, a traditional development for October and, after taking it into account, the month-on-month growth would have been more moderate. In year-on-year terms, the growth in the volume of mortgages granted slowed from nearly 80% in September to 64%, but this is due to the gradually rising comparative base. As a result, the mortgage market has continued to recover this year, with origination volumes already above 2020 levels in recent months, although they remain a quarter lower in terms of numbers. The average mortgage rate for new loans has fallen slightly to 4.9% after 4.96% in September. The average mortgage size has increased to 3.79m. CZK. The above information is based on data from the CBA Hypomonitor, which captures data from all domestic banks and building societies providing mortgage loans.
The volume of mortgages granted increased slightly in October
According to the CBA Hypomonitor, banks and building societies granted mortgages to households in the volume of CZK 26.35 billion in October . The volume of mortgages granted thus increased by CZK 2.1 billion, i.e. 9% month-on-month. However, October activity on the mortgage market is traditionally slightly more favourable than in September and, after taking this factor into account, the volume of mortgages granted would have grown by lower percentage units month-on-month. The year-on-year growth in mortgage originations was 64% after 79% in September. The decline in the year-on-year rate is due to a gradually increasing comparator base. From January to October, the volume of mortgages granted is 90% higher year-on-year, while the number of mortgages granted is 56% higher.
"The mortgage market continues to show a positive recovery, driven by more favourable mortgage rates and rising loan volumes. We are seeing increased interest in real estate, supported by deferred demand and falling rates. It is therefore true that since the fourth quarter of last year, the atmosphere on the mortgage market has already improved very significantly," says Martin Vašek, CEO and Chairman of the Board of Directors of ČSOB Hypoteční banka.
Table 1: Summary of mortgage origination volumes and average interest rates for October 2024
|
|
Volume |
Number |
Rate |
|
|
|||
|
Total |
26,4 |
7 217 |
4,87 |
|
New loans |
21,8 |
5 757 |
4,90 |
|
of which: |
|
|
|
|
for purchase |
17,7 |
4 606 |
4,89 |
|
for construction |
3,1 |
824 |
4,88 |
|
Other |
1,0 |
327 |
5,12 |
|
Refinanced from another institution |
3,7 |
1 200 |
4,74 |
|
Refinanced internally |
0,8 |
260 |
4,84 |
|
Source. |
|
|
|
"The mortgage market is gradually reviving, and if we take into account the extraordinary August, when the upcoming legislative changes concerning the conditions for early repayment of mortgages outside the fixation period were reflected in strong activity on the market, the October volume of mortgages granted is the highest this year and the highest since the beginning of 2022," says Jakub Seidler, chief economist of the Czech Banking Association.
The volume of actual new mortgages granted without refinancing reached CZK 21.8 billion in October. The volume thus increased by CZK 2.1 billion month-on-month, i.e. by 10.8%. The number of newly granted mortgages reached 5 757, which is 10% higher than in September and 40% higher than a year ago. The volume of refinanced loans (internally or from another institution) decreased after a one-off increase in August and remained at CZK 4.6 billion in October. The share of refinanced loans in the total volume of mortgages granted thus fell to 17.3%, compared with 20.7% in August and 18.8% in September.
The average mortgage rate decreased further
The interest rate on actual new mortgage loans continued to fall slightly in October, reaching 4.9% after 4.96% in September. In the last three months, it has thus fallen back below the 5% mark after more than two years. Realised interest rates, as opposed to bid prices, reflect the actual real interest rate on signed mortgage contracts.
Chart 1: Average mortgage rate - new business
Mortgage rates reacted with a lag of several months, mainly to developments in market interest rates for longer maturities. They are influenced by a number of factors - not only the expected development of CNB base rates, but also the inflation outlook, economic developments and the dynamics of similar interest rates abroad. The aforementioned market interest rates for longer maturities [1] have recently been noticeably volatile and react to a large extent to market expectations related to the development of the Fed Funds rate. Although their average value in September was the lowest of the year, these rates have started to rise again since October and their average value in October was around 0.3 pp higher than in September.
[1] These are mainly long-term interest rate swaps (IRS), which reflect the price of money at longer maturities, such as 2 to 10 years.
"After the August extreme, the volumes of new mortgages have stabilised. More and more often clients are in a hurry to get a mortgage, so it can be concluded that the property market is getting hotter and buyers are competing for affordable properties. On the other hand, we are witnessing a paradox where the CNB continues to cut interest rates, yet the cost of money for 3-year or 5-year fixings is rising and is now virtually the same as it was at the beginning of this year. This will fundamentally inhibit further possible decline in mortgage interest rates in the near term and does not exclude a slight increase," said Milan Voldřich, Raiffeissenbank's mortgage credit manager.
Average mortgage size increased slightly further in October
The average mortgage size in October was 3.79 after 3.76 million. CZK in September. Excluding the exceptional value in August, the average mortgage size has been rising steadily since April, surpassing the previous record level set in November 2021 of £3.46m.The gradual decline in mortgage rates or the relaxation of macroprudential income limits by the CNB, together with the gradual increase in real household incomes, are making it possible to achieve a higher mortgage. The mortgage rate is also related to the development of property prices, which were roughly 10% higher in Q2 this year than in the last quarter of 2021 and continued to rise in Q3, according to preliminary data.
The scenarios for the evolution of monthly repayments for different mortgage maturities are shown in Table 2. It shows that a rise in mortgage rates by one percentage point means an increase in the monthly instalment of about CZK 2 000 for an average mortgage size. Compared to the 2% interest rate that was common on the market in earlier years, the current mortgage rate means an increase in the monthly instalment for an average mortgage of approximately CZK 6,000. [2] A mortgage payment of CZK 1 million with a 30-year maturity at current interest rates is around CZK 5,500.
[2] The table is available in the xls file attached on the CBA Hypomonitor website
Table 2: Average monthly mortgage payment by length of repayment and interest rate
|
Average size of new mortgage in CZK: |
|
|
3 785 978 |
||||
|
Average interest rate in %: |
|
2,0 |
3,0 |
4,0 |
4,90 |
6,0 |
7,0 |
|
|
|
|
|
Monthly instalment: |
|||
|
Mortgage maturity in years: |
15 |
24 363 |
26 145 |
28 004 |
29 737 |
31 948 |
34 029 |
|
20 |
19 153 |
20 997 |
22 942 |
24 771 |
27 124 |
29 353 |
|
|
25 |
16 047 |
17 954 |
19 984 |
21 906 |
24 393 |
26 759 |
|
|
|
30 |
13 994 |
15 962 |
18 075 |
20 087 |
22 699 |
25 188 |
|
Source. |
|||||||
|
Note: The coloured column corresponds to the interest rate of the latest CBA Hypomonitor, other rates are illustrative |
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Mortgage market activity drops by a quarter for the full year 2023
For the whole year 2023, banks and building societies granted mortgage loans in the volume of CZK 150 billion, of which net new loans without refinancing amounted to CZK 124 billion. This was a year-on-year fall of 24%. This is mainly due to the fact that the first half of 2022 was still strong in terms of mortgage originations and the higher comparative base from this period is thus affecting the year-on-year comparison. As a result, there were 50% fewer mortgages originated year-on-year in the first half of 2023 and over 50% more in the second half of 2023. Compared to the pre-pandemic years 2017-2019, the volume of mortgages granted in 2023 was roughly one-third lower.
Chart 2: Annual volume and number of mortgages granted between 2021 and 2023
Source: CBA Monitor
CBA publishes summary statistics for the entire banking market
The Czech Banking Association, in cooperation with its member banks, publishes new aggregate statistics on the housing market. These are mainly the volumes and numbers of newly granted and refinanced mortgages and the respective interest rate. These statistics are published by the CBA in aggregate form for the entire banking sector on a regular basis around mid-month. All domestic banks and building societies providing mortgages in the Czech Republic participate in the survey. The data are available from January 2020 in the attached file on the website www.cbaonline.cz, where the relevant statistics can also be found separately for banks and building societies. The above figures are for the sector as a whole, which can also be viewed in a simple graphical form on the cbamonitor.cz website .
Methodology of the CBA Hypomonitor
The CBA Hypomonitor divides mortgage loans granted by banks and building societies to households into several categories in order to distinguish new loans from refinanced or internal refixations. New loans are then reported in categories according to the purpose of the loan:
1. new loans
These are loans whose full volume enters the economy for the first time. This category does not include loan consolidations or loan refinancing. It is divided into three categories:
- Purchase of real estate
- Property construction - including property renovation
- Other new arrangements - only new loans that are in no way related to the purchase or construction of the property, e.g. so-called American mortgages, settlement of a JVM, repayment of the purchase price, settlement of an inheritance share, settlement of a cooperative share, etc.
2. Refinanced loans from another financial institution
These are loans that have been originated by refinancing one or more loans from a financial institution other than the reporting one. Irrespective of the amount refinanced and regardless of the amount of any increase, the total amount of the newly originated loan is reported in this category.
3. Loans increased or internally refinanced
These are loans that were already part of the reporting entity's portfolio in the previous reporting period and have undergone one of the following changes during the reporting period:
- an increase in the agreed amount
- changes such that the original loan has been refinanced/converted into a new loan within the reporting entity. This is a genuinely new contract and not, for example, just a new arrangement in the context of a refixation of an existing contract. Therefore, the volume of such loans in the CBA statistics is lower than 'other new arrangements' in the Czech National Bank statistics.
The following banks and building societies provide data for the CBA Hypomonitor: Air Bank, Banka Creditas, Česká spořitelna, ČSOB, ČSOB Stavební spořitelna, Fio banka, Hypoteční banka, Komerční banka, mBank, Modrá pyramida, MONETA Money Bank, MONETA Stavební spořitelna, Oberbank, Raiffeisen stavební spořitelna, Raiffeisenbank, Stavební spořitelna České spořitelna, UniCredit Bank.