CBA Hypomonitor: Mortgage activity slowed in September
Average mortgage rate fell to 4.96 per cent
Prague, 11 October 2024 - In September this year, banks and building societies granted mortgage loans worth more than CZK 24 billion, of which nearly CZK 20 billion were actually new loans. Compared to August, however, mortgage activity fell by a quarter. August this year was positively influenced by households' efforts to conclude mortgage contracts before the amendment to the law regulating the conditions for early repayment of mortgage loans came into force. In annual terms, the growth in the volume of mortgages granted slowed down from 130% in August to almost 80%. September's mortgage volume is thus returning to more standard values for this year, but it continues to confirm the gradual recovery of activity on the mortgage market. From January to September, the year-on-year increase in the volume of mortgages granted was more than 90%, and 60% in the number of mortgages granted. The average mortgage rate for new loans decreased slightly to 4.96% after 4.98% in August. The average mortgage size decreased to 4.96% after 3.95 million in August. CZK 3.76million in July. 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 in September returned to the values prevailing before the extraordinary August
According to the CBA Hypomonitor, banks and building societies granted mortgages to households in the volume of CZK 24.2 billion in September. Thus, the volume of mortgages granted fell by a strong CZK 8.1 billion month-on-month after having risen by CZK 8.6 billion in August. As the correction of the September figures shows, August activity on the mortgage market was largely influenced by the change in the Consumer Credit Act, which led many households to try to conclude or refinance a mortgage contract under the original terms during August. As a result, September values have returned to those normal before the extraordinary rise in August. Year-on-year growth in mortgage originations reached 78.5% after 130% in August. From January to September, the volume of mortgage originations exceeded 90% and the number of mortgage originations was less than 60%.
"The unprecedented increase in interest in mortgages in August was probably due to the legal changes in early repayment rules that came into force in September. Thus, September's development is back on track and the mortgage market continues its steady growth, caused by both positive consumer sentiment and a gradual decline in interest rates," says Petr Gapko, chief economist at Moneta Money Bank.
Table 1: Summary of mortgage origination volumes and average interest rates for September 2024
|
|
Volume |
Number |
Rate |
|
|
|||
|
Total |
24,2 |
6 713 |
4,94 |
|
New loans |
19,7 |
5 232 |
4,96 |
|
of which: |
|
|
|
|
for purchase |
15,8 |
4 087 |
4,94 |
|
for construction |
2,9 |
823 |
4,94 |
|
Other |
1,0 |
322 |
5,22 |
|
Refinanced from another institution |
3,7 |
1 194 |
4,86 |
|
Refinanced internally |
0,9 |
287 |
4,87 |
|
Source. |
|
|
|
The volume of actual new mortgages granted without refinancing reached CZK 19.7 billion in September. The month-on-month volume thus fell by CZK 6 billion, i.e. by the same amount as the month-on-month increase in August.The number of new mortgages granted reached 5,232, a similar figure to July, but a 20% drop compared to August. The volume of refinanced loans (internally or from another institution) also fell after a one-off increase in August, although it remained slightly above the level of June or July (CZK 4.6 billion in September compared with CZK 6.7 billion in August). The share of refinanced loans in the total volume of mortgages granted fell to 18.8% from 20.7% in August.
"In August, banks saw more significant demand for mortgage loans. Given the fact that the amendment to the law regulating reasonable costs came into force on 1 September 2024, it is clear that clients have front-loaded their mortgages to be subject to the old conditions in the event of early repayment.Despite the drop in volumes in September, we perceive that interest in mortgages on the market is growing," says Soňa Holíková, mBank's mortgage credit manager.
The average mortgage rate decreased cosmetically
The interest rate on actual new mortgage loans continued to fall slightly in September, reaching 4.96% after 4.98% in August, when it fell below the 5% mark for the first time in more than two years. Realized 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 the development of 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 been noticeably volatile recently, reacting to a large extent to the markets' expectations of the Fed funds rate, and have started to rise again slightly since the end of September. They are currently about 0.3 p.p. higher than a month ago. However, their September average was the lowest this year and at the lowest levels since late 2021.
[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.
"The development of market rates for longer maturities has been volatile this year and in recent weeks rates have been rising again slightly due to global developments.However, their average value in September was the lowest since the end of 2021. Mortgage rates are reacting to the development of market rates with a few months' delay, so unless the market development reverses significantly, the further slight decline in mortgage rates should continue in the coming months," says Jakub Seidler, chief economist at the Czech Banking Association.
Average mortgage size fell in September to July's level
The average mortgage size jumped from 3.77 to 3.95 million in August. However, in September, the value returned closer to the values of July. Leaving aside this correction after the exceptional August, the average mortgage amount has been rising steadily since April, exceeding the previous record level of November 2021 of CZK 3.46m.The gradual decline in mortgage rates or the relaxation of macroprudential income limits by the CNB, together with a gradual rise in real household incomes, has made 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 around 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: |
|
|
3 760 561 |
||||
|
Average interest rate in %: |
|
2,0 |
3,0 |
4,0 |
4,96 |
6,0 |
7,0 |
|
|
|
|
|
Monthly instalment: |
|||
|
Mortgage maturity in years: |
15 |
24 200 |
25 970 |
27 816 |
29 653 |
31 734 |
33 801 |
|
20 |
19 024 |
20 856 |
22 788 |
24 728 |
26 942 |
29 156 |
|
|
25 |
15 939 |
17 833 |
19 850 |
21 889 |
24 229 |
26 579 |
|
|
|
30 |
13 900 |
15 855 |
17 953 |
20 088 |
22 546 |
25 019 |
|
Source. |
|||||||
|
Note: The colored 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
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.