CBA Hypomonitor: Mortgage market continued to strengthen in March

Prague, 12 April 2024 - Banks and building societies granted mortgage loans exceeding CZK 18 billion in March this year. Month-on-month, the volume of mortgages granted increased by more than 15% compared to February. However, an increase in March's activity on the mortgage market compared to February is normal, so the month-on-month volume was mostly stagnant after taking into account this seasonal effect. In year-on-year terms, the volume of mortgage originations was almost 50% higher in March, while in February the market grew by twice as much year-on-year. The lower year-on-year dynamics are related to the higher comparative base of last year, when mortgage activity started to recover from March. The average mortgage rate for new loans continued its faster decline in March, falling to 5.19% from 5.36% in February, which is still the lowest level since June 2022. The information is based on data from CBA Hypomonitor, which captures data from all domestic banks and building societies providing mortgage loans.

The volume of mortgages granted in March grew in line with normal seasonality compared to February
Banks and building societies granted mortgages to households in the volume of CZK 18.2 billion in March, according to the CBA Hypomonitor. The volume of mortgages granted thus rose by 15.5% month-on-month. However, double-digit month-on-month growth is fairly typical for March and, after taking into account the traditional seasonality, the volume of mortgages granted was mostly stagnant. From a year-on-year perspective, the effect of the higher comparative base of last March, when mortgage volumes rose markedly month-on-month, is starting to show. Year-on-year growth thus reached 50% in March, down from 100% in February. Compared to March 2020, however, the volume of mortgages granted was still almost 20% lower.

"The current data confirms the positive recovery of the market. We see a continued year-on-year growth in interest in buying real estate, and the gradual trend of growing interest in economical housing is interesting. For example, we see in our data that one in three mortgages of new mortgages taken out finance low-energy houses and flats. The same reasons, i.e. financial savings, are leading more and more people to reconstruct and modernise their properties in order to reduce their energy consumption," says Martin Vašek, CEO of Hypoteční banka.

Table 1: Summary of mortgage origination volumes and average interest rates for March 2024 

"In March, we recorded 50% more applications than the average in the fourth quarter of last year. This trend can be expected to continue due to pent-up demand for housing over the past two years. Despite a significant reduction in CNB rates, the price of longer interest rate swaps has increased, which will prevent further significant cheapening of mortgages at the moment," said Milan Voldřich, Raiffeisenbank's mortgage loans manager.

The average mortgage rate fell further and remains the lowest since June 2022
The interest rate on actual new mortgage loans fell further from 5.36% in February to 5.19%, and the intensity of the month-on-month decline thus remained at the February level. This development is attributable to the faster decline in market interest rates, which in the first quarter of this year reached their lowest levels since the turn of 2021 and 2022, due to the growing expectations of a rate cut by central banks. However, despite these developments, mortgage rates remain above average for the past two decades. Realised interest rates, as opposed to bid prices, reflect the actual real interest rate on signed mortgage contracts. Offering rates have also fallen more significantly below the 6% threshold as a result of recent developments in market interest rates, and in limited cases offers below 5% have also been made.

"The slower decline in US inflation led the market to further reassess the pace of the Fed's interest rate cuts, which had an impact on a range of interest rates, including domestic ones. As a result, market rates for longer maturities reached their highest level this year during April, which will put the brakes on the relatively rapid decline in mortgage rates so far," said Jakub Seidler, chief economist at the Czech Banking Association.

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 started to fall since last October, due to higher market expectations of rate cuts by the major central banks, which has opened up room for mortgage rates to fall faster. In the last month, however, interest rates have started to rise again on waning expectations for a Fed rate cut, which has affected domestic rates, which have reached their highest level since December last year. Compared to last month, they are up half a percentage point, and although still below last year's average, the current trend of relatively faster declines in mortgage rates is likely to slow that trend. 

[1] These are primarily long-term interest rate swaps (IRS), which reflect the cost of money in longer maturities, such as 5 to 10 years.

The average mortgage size increased again in March
The average mortgage amount increased slightly in March, from CZK 3.38 to CZK 3.44 million. This is the highest level since December 2021 and only slightly below the previous high of £3.46m in November 2021. CZK. Since then, it has gradually declined and reached its lowest level in January last year at CZK 2.83m. Table 2 shows the scenarios of the development of the monthly instalment for different mortgage maturities. It shows that a rise in mortgage rates by one percentage point means an increase in the monthly instalment of approximately CZK 1,500 to 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 payment for an average mortgage of approximately CZK 6,000. 

[2]The mortgage payment of one million CZK with a 30-year maturity at current interest rates is around CZK 5.5 thousand.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  

Mortgage market activity fell by a quarter in the whole year 2023
In 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 decline 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 2023Source: CBA Hypomonitor

CBA publishes new aggregate statistics for the entire banking market
The Czech Banking Association publishes new aggregate statistics from the housing market in cooperation with its member banks. 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.