CBA Hypomonitor: Mortgage activity eased slightly in November
Average mortgage rate fell to 4.85 per cent
Prague, 13 December 2024 - In November this year, banks and building societies granted mortgage loans worth more than CZK 26 billion, of which CZK 21.6 billion were actually new loans. Compared to October, mortgage activity decreased marginally, but remains almost 30% stronger compared to the first half of this year. In year-on-year terms, the growth in mortgage origination volumes slowed to 62% in November from 64% in October. The mortgage market is thus still recovering this year and origination volumes have already reached above the average level of 2020 in recent months, although they remain a quarter lower in terms of the number of mortgages. The average mortgage rate for new loans has fallen slightly to 4.85% from 4.9% in October. This reduces repayments by around 2.5% of a mortgage applicant's net income compared to last year. However, the average mortgage size rose slightly to 3.84 million in November. This is despite a slowdown in both the total volume and the number of new mortgages. This may reflect a combination of higher house prices, rising wages and lower interest rates. This 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 in November was mostly stagnant at the October level
According to the CBA Hypomonitor, banks and building societies granted mortgages to households in the volume of CZK 26.1 billion in November. The volume of mortgages granted thus fell slightly month-on-month by CZK 240 million. However, the decline was about three percentage points stronger if we take into account the usual slightly higher month-on-month growth of the mortgage market in October. Year-on-year growth in the volume of mortgage originations slowed slightly further to 62% after a 94% increase in the first three quarters of this year. The decline in year-on-year growth is due to a gradually increasing comparative base. From January to November, the volume of mortgages originated is 86% higher year-on-year, while the number of mortgages originated is 53% higher.
"Demand for mortgages has been stable since the summer and rates continue to fall slightly. In an environment where we continue to expect a slight decline in rates, demand for mortgages should remain high," says Petra Skrbková, Head of Housing at Česká spořitelna.
Table 1: Summary of mortgage origination volumes and average interest rates for November 2024
|
|
Volume |
Number |
Rate |
|
|
|||
|
Total |
26,1 |
7 071 |
4,83 |
|
New loans |
21,6 |
5 620 |
4,85 |
|
of which: |
|
|
|
|
for purchase |
17,7 |
4 557 |
4,84 |
|
for construction |
2,7 |
715 |
4,79 |
|
Other |
1,1 |
348 |
5,10 |
|
Refinanced from another institution |
3,7 |
1 179 |
4,70 |
|
Refinanced internally |
0,8 |
272 |
4,83 |
|
Source. |
|
|
|
The volume of actual new mortgages granted without refinancing reached CZK 21.6 billion in November, with a similar month-on-month development as for total mortgages. Similar to the volume, the number of newly granted mortgages did not change significantly, reaching 5 620 in November, which is, however, 35% higher than a year ago. After a one-off increase in August, the volume of refinanced loans (internally or from another institution) remained at CZK 4.6 billion in November, as in the previous two months. As a result, the share of refinanced loans in total mortgage originations increased slightly to 17.5%, slightly above this year's average of 16.9%. This is close to the 17.2% share from 2022-2023, but still below the nearly 29% share from 2020-2021, when households refinanced at a mortgage rate of 2.14%.
"In the summer months, the stronger demand was not only due to the effect of decreasing rates, but also to the clients' desire to conclude a contract by 1 September, when the conditions for extraordinary repayment changed. The slight drops in demand in September and October levelled off in November and we can once again speak of an upward trend. We expect demand to grow in the following months as well and we are preparing for a wave of clients who will refinance mortgages from the period of low interest rates," expects Roman Vítek, Director of Fio banka's Client Division.
The average mortgage rate decreased further
The interest rate on actual new mortgage loans continued to fall slightly in November, reaching 4.85% after 4.90% in October. It has thus remained below the 5% mark for the past three months for the first time in more than two years. The November mortgage rate was thus almost one percentage point lower compared to its average of 5.8% in 2023 (it almost reached 6% at the end of 2022). Realised interest rates, as opposed to offer prices, reflect the actual real interest rate on signed mortgage contracts.
Chart 1: Average mortgage rate - new business
Mortgage rates are reacting with a lag of several months mainly to the development of market interest rates for longer maturities. They are affected by a number of factors, not only the CNB interest rate, but also a combination of the outlook for inflation, the economy and exchange rate dynamics. At present, for example, the market is currently signalling a more modest fall in CNB interest rates of around half a percentage point on the annual outlook than it was forecasting at the end of September. This is due to stronger consumer inflation, stronger wage growth in the economy. At the same time, developments in similar interest rates abroad are also playing into this dynamic. The aforementioned market interest rates for longer maturities [1] have been volatile of late, reacting to a large extent to market expectations linked to the development of rates in the US. The Czech five-year rate is now around 3.5%, some 0.35 percentage points higher than in September. This reflects an increase of more than half a percentage point in US rates, partly offset by a fall of almost a quarter of a percentage point in similar euro rates.
[1] These are primarily long-dated interest rate swaps (IRS), which reflect the cost of money at longer maturities, such as 2 to 10 years.
"The lower rates on new mortgages mean that applicants will spend less on their monthly repayments, roughly in line with the increase in consumer prices this year, i.e. by almost 2.5%. However, in the coming years, the mortgage market will have to refinance mortgages from the period of low interest rates," notes Radek Šalša, spokesman for the Czech Banking Association.
Average mortgage size increased slightly further in November
The average mortgage size in November was 3.84 after 3.79 million. CZK in October. Excluding the exceptional value in August, it 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 continued easing of macroprudential income limits by the CNB, together with a gradual rise in real household incomes, is making it possible to achieve a higher mortgage. The mortgage rate is also linked 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 fall in mortgage interest rates this year has reduced the repayment on the average new mortgage by 10%, almost 2.5% of an applicant's net income. Table 2 shows the monthly payment scenarios for different mortgage maturities. It shows that a fall in mortgage rates of almost one percentage point relative to their average level in 2023 has resulted in a reduction in the monthly repayment of almost CZK 2 200 for an average mortgage size with a typical repayment period of almost 27 years. [2] Conversely, compared to the average 2.3% mortgage rate for new mortgages in 2019, the current mortgage rate raises the monthly repayments for the average mortgage by more than CZK 6,000 when the loan term is shortened. A mortgage payment of CZK 1 million with a 30-year maturity at current interest rates is around CZK 5,300.
[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: |
|
|
3 835 469 |
||||
|
Average interest rate in %: |
|
2,0 |
3,0 |
4,0 |
4,85 |
6,0 |
7,0 |
|
|
|
|
|
Monthly instalment: |
|||
|
Mortgage maturity in years: |
15 |
24 363 |
26 145 |
28 004 |
30 033 |
31 948 |
34 029 |
|
20 |
19 153 |
20 997 |
22 942 |
24 997 |
27 124 |
29 353 |
|
|
25 |
16 047 |
17 954 |
19 984 |
22 089 |
24 393 |
26 759 |
|
|
|
30 |
13 994 |
15 962 |
18 075 |
20 241 |
22 699 |
25 188 |
|
Source. |
|||||||
|
Note: The coloured column corresponds to the interest rate of the latest CBA Hypomonitor, other rates are illustrative |
|||||||
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
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 the middle of each 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.